Friday August 1, 2014 - 04:01:20 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 01-Aug-2014 -0400 GMT
The exact reason for the mini crash in the US market last night is largely unknown. From the Argentine default to a weak European lead to a rise in the Employment Cost Index – everything is being discussed. Technically, Europe lies at the make or break point and the result may spread all over the globe.
The weakness in Dow (16563.30, -1.88%) was mentioned for the last two days and now the sharp fall has taken it close to the major support area of 16300-200. The expected July top is in place and we may see some more cut before this correction ends. The Dax (9407.48, -1.94%) is testing its 2 year long channel support at 9400-350 and a break below 9300 would not only target 8900 level, the long term bull market would be threatened too.
Nikkei (15572.69, -0.31%) has opened sharply lower today and unless it gets back above 15600 soon, a trip to 15200 can’t be ruled out. Shanghai (2204.63, +0.14%) has ended the month above 2140 and may target the final long term resistance in 2260-70 now. Some profit booking may emerge in the area of 2230-70.
Nifty (7721.30, -0.90%) lost all its recovery contrary to the expectations and now the previously discussed 7680-60 levels become relevant again. If the correction doesn’t end by 7660, then we may expect a much deeper cut.
Commodities are all trading low except Copper and this may continue while the Dollar remains strong. Oil market is also trading lower and vulnerable to a further fall on the near term.
Gold (1283.79) extends its fall further towards our target of 1280 and a break below may see 1260 levels. Near term is bearish. Silver (20.39) is also on a downfall targeting 20.108 in the near term. No scope for bulls to be seen for now.
Copper (3.2330) is stable for now while above 3.20 but with the commodity sector vulnerable to sharp falls will Copper be an exception? Need to wait and watch if it breaks below 3.20. Near term remains bullish.
Nymex WTI (98.00) has fallen sharply yesterday amidst Dollar strength. This may not be the end of the fall as there is some more room on the downside towards long term support near 96.
Brent (105.89) has also fallen breaking the crucial 106 levels and this may indicate a danger of a fall to 105-104 levels. The Brent-WTI spread widened further to 7.89% and 9% in the near term.
Except the Aussie and the Pound, no other currency moved much. Yen may weaken further but keep an eye on Aussie, where the drop is surprising in the context of a violent rise in Chinese equities.
Euro (1.3388) is taking a pause in the form of a Triangle and looks set for a drop to 1.33 in the next 1-2 sessions. Any corrective bounce may face resistance initially at 1.3415-45 and then 1.3475-1.3500.
Dollar-Yen (102.89) is trading in the range of 101-103 as expected but now it may attempt the difficult rise to 103.50-104 if it manages to sustain above 102.80. Euro-Yen (137.75) is consolidating in the higher levels and may rise to test the resistance area of 1.3830-50, above which the door to 1.39 will open.
Pound (1.6857), contrary to expectations, has broken below the support of 1.6890 and now 1.6830 must provide support or else the 9-month uptrend may get threatened.
Aussie (0.9291) could not get back above 0.9350 as required for the bulls and as a result, it has come down to the major channel support of 0.9250 as expected which must hold to protect the uptrend.
Dollar-Rupee (60.55) has not only tested the 60.45-55 levels as expected but has broken out of the range of 60.00-50 and may test the 60.80-61.25 levels now.
Importantly, the rise in US Swap Rates (2Yr 0.1955, against 0.1698 on Tuesday) is beginning to get reflected in the US 12-mth LIBOR, which is showing a slight uptick from 0.55% to 0.57%. Glacial upmove, no doubt, but an upmove nevertheless.
Take a look at USD">http://www.kshitij.com/graphgallery/usdlib.shtml#USD
The US 5Yr (1.76%) is threatening to break higher above an important one year old horizontal trendline. If so, it could target 1.95% by October. The 10Yr (2.57%) and 30Yr (3.34%) have bounced further. That said, the 10-5 yr Spread (0.81%) is still in a downtrend since 1.42% (Nov-13) and needs to rise above 0.85% to break it. Might not be easy, cannot be taken for granted.
As suggested yesterday, the 10Yr GOI yield (8.72%) has adjusted back upwards after the coming in of the new bond. Important Resistance at 8.75% still holding well.
22:30 GMT or 4:00 IST AU PMI
...Previous 48.9 ...Actual 50.7
1:30 GMT or 7:00 IST AU PPI
...Expected 0.70 % ...Previous 0.90 % ...Actual -0.1 %
1:35 GMT or 7:05 IST JP PMI
...Expected 50.8 % ...Previous 50.8 % ...Actual 50.5 %
8:00 GMT or 13:30 IST EU PMI
...Expected 51.9 ...Previous 51.9
8:30 GMT or 14:00 IST UK PMI
...Expected 57.2 ...Previous 57.5
12:30 GMT or 18:00 IST US NFP
...Expected 230 K ...Previous 288 K
12:30 GMT or 18:00 IST US Unemployment Rate
...Expected 6.1 % ...Previous 6.1 %
14:00 GMT or 19:30 IST US Manufacturing ISM
...Expected 56.1 ...Previous 55.3
12:30 GMT or 18:00 IST US Personal Income
...Expected 0.4 % ...Previous 0.4 %
12:30 GMT or 18:00 IST US PCE Price Index M/M
...Expected 0.5 % ...Previous 0.15 %
UK Cons Conf
...Expected 2 ...Previous 1 ...Actual -2
EU CPI (YoY)
...Expected 0.50 % ...Previous 0.49 % ...Actual 0.40 %
...Expected 11.6 % ...Previous 11.6 % ...Actual 11.50 %
...Expected 0.3 % ...Previous 0.1 % ...Actual 0.4 %