Thursday May 22, 2014 - 03:36:58 GMT
Share This Story
FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 22-May-2014 -0336 GMT
Most of the markets including the Asia-Pac are in short term downtrends but still the US Fed minutes showing the policy makers seeing almost no risk of inflation from continued US stimulus produced sharp bounces, reminding us of the surprise counter-trend moves mentioned and warned about for the last 2 days.
The Dow (16533.06, +0.97%) recovered all of the previous day’s loss bouncing from the support zone of 16350-300. Though the downtrend is not reversed yet, we may expect sideways move in the range of 16300-16600 for the next 2 sessions.
The Dax (9697.87, +0.61%) keeps trading in 9500-9800 but it must break above 9800 to overcome the current weakness and resume the major uptrend. Till then, a retest of 9400 remains a distinct possibility.
The Nikkei (14245.37, +1.45%) has produced the sharp spike up warned about yesterday but even then it must break above the resistance area of 14400-500 to reverse the downtrend and rally towards 15000. The Shanghai (2037.21, +0.61%) is trading in our resistance zone of 2036-38 right now and it may rise to the next major supply zone of 2060-80 next where the price action may determine the medium term trend.
Nifty (7252.90, -0.31%) has suffered from FII selling for the last 2 days, the first time in the last few weeks and the profit booking may have continued today. Support may be expected at the 7130 and 7080 on any dip. The structure doesn’t yet support any fast rise but we keep an eye on any possible base development.
China’s better PMI data seems to make a positive impact on Crude oils taking them closer to the targets while the metals remain range bound with no major movement for now.
Gold (1291.91) looks weak but has been trading near crucial channel support and resistance for the last 3-sessions. Unless a break below 1290, we may still expect a slight bounce to 1300. While Silver (19.435) remains stable for now, both metals continue to range sideways.
Copper (3.1415) has bounced a bit from mid-term support near 3.11 while in a recent uptrend but above 3.10 there is a possibility to target 3.20-3.25 in the near term. A better than expected China PMI may help the metal to rise further.
Brent (110.53) and Nymex WTI (104.030) rose sharply yesterday and may be supported by a better China PMI released today. Both the crudes are in an uptrend. Brent may target 112 on a break above 110.58 while WTI may aim 105.22 levels in the near term. Bulls are strong and is dominating the prices for now.
Except Pound (and Rupee), Dollar is strengthening against nearly all other major currencies. Keep an eye on the lows of the last week for all the pairs. Nearly all of them are important supports.
Dollar-Yen (101.54) bears failed to break the long term support of 100.70-60 and got hit by a sharp bounce as expected. A break above 101.75-102.00 may bring back uptrend and extend the rally further towards 103.00.
The Euro-Yen (138.84) is testing an important Support here around 138.70-30 and could attempt a bit of a bounce. But unless Resistance at 140 is broken, there could be chances of further fall to test 200-day MA at 137.94 or even lower towards 136.
The Euro (1.3673) is in a very weak state and any bounce is expected to face selling pressure. Though the possibility of rise still survives above 1.3650, expect more fall towards sub-1.35 as long as it stays below 1.3800.
The Pound (1.6888), the strongest among the major currencies now, looks set for further rise to 1.70-71 as long it trades above 1.6730. Only a break below 1.6730 could negate the uptrend and then a dip to sub-1.6600 levels would be on cards.
The Aussie (0.9263) is trying to stay above the major support area of 0.9200-0.9150 after the sharp fall. But the current structure hints at more downmove towards 0.8950 on a break below 0.9150.
Dollar-Rupee (58.7750) extended the bounce to 58.86 to give us a 49 paisa bounce from the low of 58.37, similar to the previous bounces in the current downtrend. So the bounce may be over now if it fails to break above 58.90-59.00 immediately. In that case, a retesting of 58.35 is possible below the support of 58.55.
The US 10-5Yr yield differential (1.01%) remained unchanged as the 5Yr (1.52%) and the 10Yr (2.53%) rose in the same proportion. The 5Yr had come off from the resistance near 1.55% and may target lower levels and the 10Yr (2.53%) is testing resistance at current levels and can move up if the resistance breaks.
The German –US 2Yr spread (-0.26%) has remained stable as the Euro (1.3673) fell below the support near 1.37. It can now target support near 1.36 as seen the line charts. See http://www.kshitij.com/graphgallery/eurma.shtml#ma . The German 10Yr (1.37%) is up and may target 1.45% if it is able to maintain the rise otherwise a fall to 1.25%-1.20% can be expected.
The Japan 10Yr (0.60%) saw a rise after the BOJ Governor Haruhiko Kuroda hinted that the Central Bank will carry on with its current policy to achieve its 2% inflation goal. The US-Japan 10Yr yield differential (1.94%) is up instead of falling further after the rise in the Japan 10Yr. The 10Yr has come to test resistance at current levels and may target 0.62-0.63% if the resistance breaks.
The 10Yr GOI (8.77%) fell and has come to test the 200 Day MA support. The Indo-US 10Yr yield spread (6.24%) has also come down to test support at current levels. With both the yield and the yield spread testing supports we can expect at rise in the 10Yr GOI to 8.90% and maybe higher if the supports hold.
1:45 GMT or 7:15 IST CN Manufacturing PMI (P)
...Expected 48.10 ...Previous 48.10 ...Actual 49.70
8:30 GMT or 14:00 IST UK GDP
...Expected 0.80 % ...Previous 0.86 %
14:00 GMT or 19:30 IST US Existing Home Sales
...Expected 4710 K ...Previous 4590 K
...Previous <0.10 % ...Actual <0.10 % ...Expected <0.10 %
UK BOE Minutes
...Expected 0-0-9 % ...Previous 0-0-9 % ...Actual 0-0-9 %