Monday May 26, 2014 - 03:29:49 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 26-May-2014 -0329 GMT
The sentiment in the Asia-Pac this morning is well in the positive after an increase in US home purchases but the price action may be muted today as the US market is closed today for Memorial Day.
There is a contraction visible in Dow (16606.27, +0.38%) as both the rallies and the drops are getting smaller even with the higher highs & lows coming up. Keep an eye on 16300 on the downside and 16800-900 on the upside for an explosive breakout beyond this contracting range. The Dax (9768.01, +0.48%) chart shows similar price contraction too with the boundaries of the range coming at 9600 and 9900. It is also close to the all time high of 9800 levels so expect some good moves.
The Nikkei (14565.06, +0.71%) is at a 4-week high and now a break above 16650 may trigger a short term reversal and a rally towards 15200-300 or even higher. The Shanghai (2038.18, +0.18%) is testing the 2040-50 resistance band for the second time in as many days without much momentum in favor . The sideways move in the broader range of 1990-2080 may continue for some more time in a base-building process. Supports are at 2010-1990.
A drop in the bad loans for SBI transformed a good day for Nifty (7367.10, +1.25%) into a better day as the stock of SBI rallied by more than 10% today. Still the rally looks more like a correction than a fresh upmove from the lows of 7130 with the pullbacks cutting deeper than warranted in a powerful rise. Keep an eye on the price action near 7400-15 for the real trend deciding move to emerge.
Copper and Crude oils look strong while Gold and Silver remains stable.
Gold (1293.62) is stable and has been ranged in the 1284-1297 region for the last few sessions. Unless a breakabove 130-1303, the sideways movement may continue keeping 1284 on the downside. No major movement expected for now.
Silver (19.457) has also been stable and may rise to 19.66 in a few sessions. The Gold-Silver ratio (66.46) looks bearish, targeting 66-65 in the near term indicating either a sharp fall or a range-bound move in the near term.
Copper (3.1845) has risen sharply on Friday and may target channel resistance near 3.20-3.23 from where we may see little correction to 3.15. Near term looks bullish.
Brent (110.030) has come off after testing resistance near 110.58 and while that holds, it may fall a little more towards 109 before re-testing 110.58. But overall it is in an uptrend.
Nymex WTI (104.09) continues its rally targeting resistance near 105-105.22 from where it may come off shsrply to 103-102 levels. There is also a possibility of a fall to 102.94 before resuming the rise towards 105.22.
Though not that successful against the EM currencies like Rupee or Real, Dollar is strengthening against nearly all major currencies now.
The Euro (1.3619) keeps falling to reach closer to a trendline support at 1.3590-80, below which no support may aid the bulls before 1.3470-1.3400 levels. The weakness remains intact below 1.3800 and any bounce is expected to face selling pressure.
Dollar-Yen (101.95) is testing our resistance area of 102 and a break above 102.00-15 may take it to the major supply zone at 102.75-103.00.
The Euro-Yen (138.85) 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 Pound (1.6833) has suffered from a sharp correction to get closer to the major support area of 1.6730-20. Still, the uptrend remains intact for targets of 1.70 as 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 (0.9235) 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 (58.52) hit a new low at 58.33 as expected and now the closing at 58.52 has established a bullish setup, which will be activated only on a break below 58.86. Please note that we may be coming closer to finding a bottom soon though no confirmatory move is visible yet. Possible bottoming areas could be 58.30 or 58.10-57.90.
The US yields saw a fall on Friday. The 10Yr (2.53%) has come down to test the crucial level of 2.53%, while the 5Yr (1.53%) has come off slightly from the resistance zone near 1.55%. The 30Yr (3.40%) can test the support near 3.38% again. A clear break on either side of the crucial levels of 1.55%, 2.55% for the 10Yr and 5Yr will give us further direction.
The German –US 2Yr spread (-0.26%) remained stable as the Euro (1.3619) comes down further to test the support at current levels (Weekly line charts). The German 10Yr (1.42%) saw a rise from the 1.37% levels and is near our target of 1.45%.
The US-Japan 10Yr yield differential (1.95%) saw a slight dip and is testing the 55 Week MA support at current levels and can rise further up as the Dollar-Yen (101.95) continues to rise. The Japan 10Yr (0.59%) has off slightly from the resistance near 0.60%. We can expect it to maintain a range of 0.55% - 0.60%.
The 10Yr GOI (8.63%) has fallen further and the Indo-US 10Yr yield spread (6.10%) has come to test support at current levels and we can expect a bounce from there. Unless a bounce is seen from these levels the downside risk of 8.50% - 8.55% for the GOI remains open.