Monday June 2, 2014 - 03:23:57 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 02-Jun-2014 -0322 GMT
The RBI policy tomorrow is keeping the market in a state of anxiety as that would be the first signal of the relationship between the new government and the RBI. Globally, the fastest increase this year in the Chinese Purchasing Managerís index has kept the Asia-Pac sentiment in the green.
The lack of bullish momentum and a contracting range in Dow (16717.17, +0.11%) despite the higher highs and lows can keep the bulls a bit anxious. Keep an eye on 16400 on the downside and 16800-900 on the upside for an explosive breakout beyond this contracting range. The Dax (9943.27, 0.04%) is taking a pause near the minor resistance at 9985-10050 but the major uptrend looks strong enough to push it up to 10300-400.
The Nikkei (14899.91, +1.83%) is shooting up towards 15200-300 or even higher as expected after the short term correction ended. Weakness may return only on a break below 14570, the chances looking slim. The Shanghai (2039.21, -0.07%) faced good selling pressure near 2060-65 as expected but the sideways move in the broader range of 1990-2080 may continue for some more time in a base-building process.
Taking the freak low of Friday at 7118 Nifty (7229.95, -0.08%) makes the daily chart ready for a bounce towards 7310 and 7360-65. But the validity of that low at 7118 remains questionable but in this downtrend, all rallies may face selling pressure at the higher levels. Keep an eye on 7200-7190 and 7080 for major supports.
Metals are weaker on lower US GDP and stronger equities. Crude remains stable and may see some near term correction while Copper is trying to rise with a slower pace.
Gold (1248.41) and Silver (18.789) shrank on stable equities and lower US GDP data, breaking 1257 as expected. Gold is likely to see support levels near 1230-1225 if it continues falling with such momentum. Silver on the other hand may test support near 18.5 from where it may bounce back to 19-19.5 region. Near term remains bearish.
Copper (3.1425) saw a little rise on better Chinese PMI and is likely to rise towards 3.20-3.25 but with lesser momentum.
Brent (109.41) is falling while within the correction mode, but is testing support near 109.39. There is a fair possibility of a fall to 109-108.5 before resuming its rise again towards 110.5-112.
Nymex WTI (102.71) has come off a bit after testing resistance near 104.5. A failure to break above 104.5 may either see a correction towards 98 or remain ranged within 98-104.5. However, near term looks bullish keeping our earlier target of 105-105.22 on the upside.
Dollar is gaining against the Yen and Pound but losing ground against Euro. Mixed signals. Rupee may be driven by speculations over RBI policy tomorrow.
Euro (1.3628) has been trying to make a bullish pattern like the Morning Star and may try to bounce back to 1.3700-30. But the weakness remains intact below 1.3800 and any bounce is expected to face selling pressure at the higher levels.
Dollar-Yen (102.05) is close to breaking above 102.15 to signal a rise towards the next resistance at 102.75-103.00, even 103.50. The Euro-Yen (139.04) has bounced from the major support at 138 and may rally to 139.40 or even 140 if Euro manages to strengthen further against the Dollar. Below 138, the door to 136-135 opens up.
The weakness and loss of bullish momentum in Pound (1.6744) is pronounced and now a dip to 1.6670-20 canít be ruled out. But it remains to be seen if the last hope for the bulls at 1.66 remains protected or not.
The Aussie (0.9263), contrary to the expectations, has failed to test the 0.94 levels and hence remains stuck in the range of 0.92-0.94 for now. Only a break of this range of 0.92-0.94 may produce any meaningful moves.
Dollar-Rupee (59.10) has corrected exactly 50% of the entire rally from 58.33 to 59.20 and now looks all set for a break above 59.20 to confirm further rise to 59.50-75.
Lots of central bank meetings this week. The two most important are the RBI Meeting tomorrow (3rd June) and the ECB Meeting on Thursday, 5th June.
The RBI may be in "wait and watch" mode as the first budget of the new government is still to come and more evidence is needed that inflation is under control. Maybe we will get some more announcement on Gold Imports. Remember, the RBI has increased the Past Performance Hedging Limit for Importers from 25% to 50% last week.
Draghi had said that he might do something on interest rates/ QE this time. European yields are low, very low, across the board, and threaten to fall further. They might also. But, note should be taken of the Spain-Germany 10Yr Spread (1.49%) is testing a long-term uptrend Support line coming up from 2007. If European yields have to move up at all (no one wants them to) they have to do so now, else we could be seeing much lower levels ahead.
The fall in the US 10Yr (2.47%) below 2.50% last week was not good news. Although there are hopes of US GDP bouncing back in Q2, it may take a lot of work now for Yields to move up again. Expect the Japanese 10Yr (0.58%) to trend lower towards 0.50% over the coming weeks/ months. Now chances of a rise.
22:30 GMT or 4:00 IST AU PMI
...Previous 44.80 ...Actual 49.20
7:30 GMT or 13:00 IST CH PMI
...Expected 55.70 ...Previous 55.80
8:00 GMT or 13:30 IST EU PMI
...Expected 52.50 ...Previous 52.50
8:30 GMT or 14:00 IST UK PMI
...Expected 57.10 ...Previous 57.30
5:00 GMT or 10:30 IST IN Manufacturing PMI
14:00 GMT or 19:30 IST US Manufacturing ISM
...Expected 55.70 ...Previous 54.90 -
UK Cons Conf
...Expected -1 ...Previous -3 ...Actual 0
...Expected 3.60 % ...Previous 3.60 % ...Actual 3.60 %
...Previous 4.70 ...Actual 4.60
US Personal Income
...Expected 0.30 % ...Previous 0.60 % ...Actual 0.23 %
US PCE Price Index M/M
...Expected 0.20 % ...Previous 1.00 % ...Actual -0.07 %
...Expected 0.10 % ...Previous 0.20 % ...Actual 0.10 %