Thursday July 31, 2014 - 03:44:40 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 31-Jul-2014 -0344 GMT
FOMC maintained their stance with absolutely no change but the US GDP data at 4% was a pleasant surprise. The US market expects the rates to be raised sooner than later now and that has limited the upside for the equities for now.
Dow (16880.36, -0.19%), in a show of weakness as mentioned before, is trying to expand the range downwards to 16700-600 but no serious bearish momentum is visible yet. The Dax (9593.68, -0.62%) wiped off its previous 3 days gains in a single session but the important thing remains to be seen is exactly when the buyers emerge from the long term support area of 9500-350, which is not expected to be broken right now.
Nikkei (15700.56, +0.35%) is trading at a 6 month high and holding above 15600-550, it may target 16000 now. Shanghai (2184.45, +0.15%) has achieved our second target of 2180 too and a normal consolidation/correction is taking place now. The expected bull market may have begun and now, a closing above 2135-40 this month may take it to the final long term challenge at 2260-70.
Nifty (7791.40, +0.55%) ended the correction exactly at 7710 and reversed sharply. Holding above 7710 and on a break above 7800, we can expect new highs to emerge at 7850-60 and above that, 8000+
Commodities are overall down except Copper. Near term remains bearish.
Gold (1294.69) has also dropped after better US GDP came out and the US equities went down. Currently trading just above 1292.8, it may head towards 1280.5. Long term bearishness is still in force while below 1350-1400. Falling to1280-1260 seems a possibility in the longer run.
Silver (20.57) is fluctuating between highs and lows above support near 20.45 and may remain ranged for a few sessions. If a break below 20.45 is seen, it may move down towards 20.25-20.108. Overall long term trend is down.
Copper (3.2335) made an intra-day low at channel support near 3.2050 yesterday and has bounced from there. The range of 3.20-3.26 seems to continue for some more time until we see a sharp upmove above 3.32-3.33. Near term bullishness remains intact while above 3.18.
Nymex WTI (99.57) has come down in line with our expectation. Will it fall further towards 98? Or will it bounce from current levels? Need to wait and watch. Near term is bearish within a longer term uptrend.
Brent (106.19) has fallen sharply after better US GDP but is trading above the crucial 106 levels. If it is unable to bounce back from these levels we may see a danger of falling below 106, towards 104. Bears seem strong for now.
The US GDP data brought more cheer for the Dollar bulls everywhere but perhaps the time for some caution is here with the Dollar Index still unable to convincingly trade above the 10 month resistance of 81.50 and the Sterling showing signs of reversal. A short term top in Dollar and a short term bottom in Euro? Letís watch.
Euro (1.3399) is firmly trading below the 200 week MA now and any corrective bounce may face resistance initially at 1.3415-45 and then 1.3475-1.3500. It looks ready for a journey to 1.33 or 1.31 in the next few days.
Dollar-Yen (102.76) hit a 3 month high at 103.09 after the US data but may find it difficult to rise further to 103.50-104. A sideways move in the expanded range of 101.-103 looks more probable now. Euro-Yen (137.68) jumped higher on the back of a sharply weakened Yen but for actual strength, a break above 1.3850 is necessary.
Pound (1.6949) is trying to reverse exactly from our target level of 1.6890 and keeping with the earlier pattern, we may conclude aggressively that the correction has ended. Buyers may emerge here with a stoploss below 1.6885 for an excellent risk-reward ratio.
Aussie (0.9327) hit a 3 month low at 0.93 levels and unless it manages to trade above 0.9350-60 very soon, the bears may attempt to push it down to 0.9250 levels. Right now, the entire broader band of 0.9250-0.9550 is at work.
Dollar-Rupee (60.0650) is stuck in the narrow range of 60.00-50 and today also, we may see higher level on the back of Dollar strength everywhere in the globe.
Importantly, the US 5Yr (1.76%) over the last one week and is now testing an important one year old horizontal trendline. A break thereof could send Yields higher. The 10Yr (2.55%) and 30Yr (3.30%) have also moved up, after having dipped over the last few days.
The FOMC continues to taper as scheduled and QE is now down to $25 bln per month. But, despite that and the 4% US Q2 GDP showing, Yellen is expected to keep rates steady for a long time. Yet, the 2Yr and 5Yr Swap Costs (0.1770% and 0.1212% respectively) continue to rise.
The US yield gap over Germany has increased further.
In other news, Argentina has been declared in default and Banco Espirito Santo has reported a record loss.
In India, the new 10Yr GOI is yielding 8.51% (against 8.71% on the old one) due to not-exact maturity dates. It may take a couple of days for the market to adjust to this new rate and for the charts to normalise themselves. Market should be quiet ahead of the RBI Meeting on 5th August, next Tuesday.
23:05 GMT or 4:35 IST UK Cons Conf
...Expected 2 ...Previous 1
9:00 GMT or 14:30 IST EU CPI (YoY)
...Expected 0.50 % ...Previous 0.49
9:00 GMT or 14:30 IST EU Unemp
...Expected 11.6 % ...Previous 11.6 %
12:30 GMT or 18:00 IST CA GDP
...Expected 0.3 % ...Previous 0.1 %
EU Biz Climate
...Previous 102.1 ...Expected 101.8 ...Actual 102.2
US ADP Emp
...Expected 234 K ...Previous 281 K ...Actual 218 K
...Expected 3.1 % ...Previous -2.90 % ...Actual 3.90 %
US FOMC Meeting
...Expected <0.25 % ...Previous <0.25 % ...Actual <0.25 %