Thursday June 5, 2014 - 03:31:15 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 05-Jun-2014 -0330 GMT
All the markets are in a silent mode. The biggest trigger right now is the ECB policy decision today. Expect quietness till the meet and a volatile environment after that.
Dow (16737.53, +0.09%) has traded in a very narrow range of 80 points for the last 3 sessions and may explode soon. Keep an eye on 16400 on the downside and 16800-900 on the upside for an explosive breakout beyond this contracting range. The Dax (9926.67, +0.07%) is in a small correction but the bullish momentum remains intact above the support area of 9800-700 and the long term uptrend looks strong enough to push it up to 10300-400.
The Nikkei (15077.22, +0.06%) is struggling in the area of 15100-150 as expected. A short term correction here would be normal and even healthy for the bulls. The Shanghai (2023.22, -0.08%) has come down from 2060-65 as expected and the sideways move in the range of 1990-2080 may continue some more in a base-building process.
Nifty (7402.25, -0.18%) spent a very flat session but the choice is clear now. Be a bull immediately on a break above 7450 but remain cautious until that breakout takes place. Above 7450, we would expect 7500 and new highs soon enough but below 7450, the range bound movement may continue.
Gold (1243.77) remains stable for now at lower levels near 1240. It may face a risk of further fall if the European Central Bank cuts rates which may strengthen the US Dollar. While above 1240, it may continue to consolidate sideways within the 1240-1260 regions but a fall below 1240 may push it down to 1230-1225 levels. Near term looks bearish while in an overall downtrend.
Silver (18.80) is also trading lower but above crucial support near 18.5. It may either choose to remain ranged within 18.5-19 or fall further to test 18.5-18.00 levels. Gold-Silver ratio (66.18) is stable for now within the 66.9-65.75 region and may continue so for some more sessions. Near term looks bearish.
Copper (3.0910) slumped sharply on news that the Chinese authorities are investigating into the use of the metal for obtaining loans which may hurt demand. Is this an indication of an upcoming correction? Or will it bounce back to levels above 3.10 to maintain the recent uptrend? Need to watch for a couple of sessions for confirmation. Note that it has broken the channel support near 3.10 but tests long term support near current levels on the daily.
Brent (108.24) is in the correction phase for now that may extend to 107.83-107 on the downside if it breaks 108. Thereafter a bounce would take it back to previous levels of 109-110 targeting 112 in the longer run. A failure to bounce from 108-107.33 (if occurs) may take it down to 107-106 levels. Note that it is in the last correction phase ending the long term contraction that started in May’2012.
Nymex WTI (102.40) has paused near 102-103 levels, deciding its further move. It needs to rise above 102.95 to target 104.5 else may remain ranged within 102-103 for a couple of sessions. Support near 102 still holds while the uptrend persists.
Nearly all the major pairs are trading like zombies, waiting anxiously for the ECB decision – is the Stimulus coming or not? Or any other easing steps? Today all the pairs may break sharply beyond their respective ranges. Beware of false breakouts.
Euro (1.3598) is precariously testing the support zone of 1.3590-70 for the last 6-7 sessions, waiting for the next ECB step. A breakout of the range of 1.3570-1.3650 may determine the short term direction even while the major trend remains down.
Dollar-Yen (102.56) is taking a pause after reaching our initial target of 102.75 and now may reach even 103.00-50. The Euro-Yen (139.45) has already pulled back from 140 as expected. The fall would be deeper on a break below 139.30-139.00.
Pound (1.6746) is stuck in the small range of 1.6690-1.6790 for more than a week now. This range may be broken today and a dip to 1.6670-20 can’t 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 (0.9277) remains stuck in the range of 0.92-0.94 for now with no clear short term directional clues. Only a break of this range of 0.92-0.94 may produce any meaningful moves. Another test of 0.9215-0.92 may signal the end of this corrective mode.
The bullish momentum for Dollar-Rupee (59.33) remains intact above 59.20 as it gets very close to our target area of 59.50-75. Supports remain unchanged at 59.20-17 and 59.10-05. A larger correction would be signaled only on a break below 59.20.
ECB Meeting today. The German 10Yr (1.43%) has been seeing a bit of rise since mid-May (from levels near 1.33%), presumably a bit of position squaring ahead of the ECB decisions. But, the rest of the yield curve suggests lower rates ahead. The KSHITIJ E-4 and E-7 10-Yr composite yield has also risen slightly over the last couple of weeks, but the overall trend is still down. That said, the Spain-Germany 10Yr Spread (1.44%) is testing a long-term Support trendline coming up from levels of 0% from 2007, that might not break very easily.
All in all, it is difficult to guage the market impact of ECB's actions today.
Remarkably, the US Yields have all bounced sharply this week after having broken below crucial support levels last week and are back in positive territory. The 5-Yr (1.63%) has seen a particularly steep rise. But, is the current bounce as false as the break below Supports last week? Or will the Yields rise further? Need to watch this over a few days.
In India, the 10Yr GOI (8.59%) is trending lower now. The cut in the SLR is possibly being seen as a big thing. Technically, now, the 10Yr can possibly trend lower over the coming weeks. This is a big change from earlier expectations (even ours) of higher yields. The Indo-US 10Yr Spread (6.02%) can also fall another 25bp. Could attract good FII interest.
0:30 GMT or 6:00 IST Australia Trade Balance
...Expected 0.53 Bln ...Previous 0.90 Bln ...Actual -0.12 Bln
9:00 GMT or 14:30 IST EU Retail Sales
...Expected 0.10 % ...Previous 0.31 %
11:00 GMT or 16:30 IST BOE Mtg
...Expected 0.50 % ...Previous 0.50 %
11:45 GMT or 17:15 IST ECB Meeting
...Expected 0.10 % ...Previous 0.25 %
14:00 GMT or 19:30 IST CA PMI
...Expected 58.60 ...Previous 54.10 -
...Expected 0.90 % ...Previous 0.80 % ...Actual 1.1 %
...Expected 0.20 % ...Previous 0.20 % ...Actual 0.20 %
US ADP Emp
...Expected 217 K ...Previous 215 K ...Actual 180 K
US Trade Balance
...Expected -40.80 $ Bln ...Previous -44.18 $ Bln ...Actual -47.24 $ Bln
...Actual 1.00 % ...Expected 1.00 % ...Previous 1.00 %