Friday July 18, 2014 - 04:02:03 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 18-Jul-2014 -0401 GMT
In the last 12 hours, every market has been affected by the sudden event risk emerging out of a Malaysian passenger plane getting shot and destroyed over the Ukraine-Russia border. This tragedy has increased the geopolitical risk a lot with new equations of war cropping up with the presence of American passengers on that plane. Today is the important session for all the major markets to see if the follow-up selling appears or not.
Dow (16976.81, -0.94%), in a reflection of the geo-political risk, reversed to the downside and now the upward momentum runs the risk of losing out if 16850-750 fails to hold. If the risk is of short term nature, then expect the range of 16850-17150 to hold today. The Dax (9753.88, -1.07%) failed to break above 9871 to confirm the strength and the entire gain of the day before was lost. Weakness fully returns below 9700.
Nikkei (15202.55, -1.09%) came down sharply just as expected while trading in the range of 15000-500 for the last 4 weeks, which may not break today. The Shanghai (2062.79, +0.35%) failed to break above the upper end of the contracting range at 2080-90 which would signal a considerable bullish reversal towards 2140-80. This signals a continuation of the broader range of 2000-2090.
Nifty (7640.45, +0.21%) spent the session trading sideways but the expected 40-60 points correction may emerge today at the very opening. Bulls would prefer any dip not to go below 7590-70 with the possibility of another new high above 7655 still alive.
Commodities are all mixed. The downing of a Malaysian passenger jet over Ukraine has supported in the rise of Crude. A sharp rise in Brent is seen which may be negative for the Indian Rupee.
Gold (1315.69) held its gains after a sharp rise on Wednesday, unable to decide a sharp upmove. It may remain paused above 1310 or rise up targeting 1350.
Silver (21.108) has also paused after a sharp rise. It may remain stable above 20.5 in the near term.
Copper (3.2140) is falling towards support 3.20 which if holds may take it higher towards 3.30-3.32. However if a break below 3.20 is seen, it may target 3.15-3.10. Need to wait and watch.
Nymex WTI (103.81) retraced almost 60% of its recent fall from 107.5. It may either test 104 levels and then fall again to 100-98 levels or break above 10-105 to target 107-110 levels. Overall the long term remains up.
Brent (108.55) has also sharply moved up from long term support near 106, in line with our expectation and may soon target 109.45-111.84 levels. Near term uptrend persists.
Risk-off is the dominating mode right now with the launching of Israeli ground offence in Gaza along with the MH-17 tragedy. From the positive side, the markets are not yet in a panic mode as evident from the sudden entry and then exit of hot money into the safe haven of the currency world – the Yen. But today is the important day to see if any escalation takes place.
Euro (1.3524) has remained mostly unchanged while closer to the long term support area of 1.3500-1.3475 now, below which the gate towards 1.3300 opens up. If the bulls have to survive, they must produce a bounce from this area immediately.
Dollar-Yen (101.34) tested the earlier spike low level around 101.10 on a safe haven entry and bounced back later when the fear subsided, to continue trading sideways in the range of 101-102, which still shows no sign of breaking. Euro-Yen (137.05) broke below 137 to make a low at 136.70 and got a bit closer to the final long term support area of 136.20-135.50. Just like Euro, the bulls must appear right now or run the risk of getting annihilated.
Pound (1.7096) is yet to break above the latest swing high of 1.7191 to continue the rally, resulting in an extension of the corrective mode in the range of 1.7050-1.7200. Expect more price action inside this range.
Aussie (0.9365) is trying to bounce from the lower end of the 5-week long band of 0.9320-0.9500. Now a break below 0.9320 would result in a drop to the long term support of 0.9240-0.9200.
Dollar-Rupee (60.18) may open sharply above the resistance of 60.26 this morning and may reach 60.40-50 in a jiffy. Keep an eye if any selling appears from the higher levels of 60.80-90.
"Safe haven" flows into German and US Bonds. "Risk aversion" is in the air.
German 10Yr Bund Yield (1.15%) now well below 1.20%, can trend lower. The Germany-Japan 10Yr Spread (0.62%) is also trading well below important trendline support and could head further down towards 0.50%. Not good for Euro (1.3525).
Very sharp decline in US Yields overnight. The 30Yr (3.28%) now trades below a very important support trendline, and at the low point seen on 29th May. The 10Yr (2.47%) and 5Yr (1.64%) are still trading above Support trendlines. Need to see whether there is a bounce from these levels today, especially for the 30Yr. Else, lower levels can follow.
But, the 2Yr Swap Cost (0.1953%) continues to trend higher. Lots of demand for Floating-to-Fixed Swaps.
Today will be the test for Indian Bonds. Will FIIs exit the market to buy US Bonds? Or will high yields attract funds? The 10Yr GOI-US Spread (6.23%) continues to have Resistance at 6.25-6.50% and can open lower today on account of the dip in US yields overnight.
9:00 GMT or 14:30 IST Euro Area Monthly Balance of Payments
...Expected 16.2 EUR Bln ...Previous 18.70 EUR Bln
12:30 GMT or 18:00 IST CA Inflation Y/Y
...Expected 1.70 % ...Previous 1.70 %
EU CPI (YoY)
...Expected 0.50 % ...Previous 0.49 % ...Actual 0.50%
US Housing Starts (Mln)
...Expected 1020 K ...Previous 1001 K ...Actual 893 K
US Philifed Index
...Expected 15.6...Previous 17.80 ...Actual 23.9