Wednesday August 6, 2014 - 04:05:24 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 06-Aug-2014 -0404 GMT
Dow (16429.47, -0.84%) fell again after the pause just as expected and reached closer to the support area of 16300-200, from where some buyers may emerge to push it up to 16600 levels once more. The Dax (9189.74, +0.39%) has firmly broken down the 2 year long channel support at 9400-350 to signal long term weakness. For now, a corrective bounce can be expected from this short term support area of 9150-9000 and then more fall.
Nikkei (15167.60, -1.00%) reached our target level of 15200 in a sharp fall, marking severe weakness. If the support band of 15100-50 fails, it may drop to 14800-600 levels. Shanghai (2200.77, -0.86%) is facing a bout of profit booking from the 2230 levels just as expected. After this correction, it may rally again towards the final long term resistance of 2260-70.
Nifty (7746.55, +0.82%) ended the day with a healthy gain after the SLR cut by RBI. To extend the rally to higher levels of 7810-40, it needs to trade above 7760 now, otherwise some profit booking may take place
The Dollar strength is pushing the metals lower and may continue so in the near term signalling bearishness for the metals. Oil markets are also trading low.
Gold (1289.63) is stable and trading a bit higher. We may see some sideways consolidation in the near term in the 1280-1300 region and unless this range breaks further direction cannot be determined. Overall long term trend is down.
Silver (19.845) fell sharply yesterday and may once again test the crucial support near 19.5-18.5 in the near term. Bearish pressure hovers in the coming sessions. Gold-Silver ratio (65.015) rose sharply as Silver fell and may target resistance near 65.5 in the near term.
Copper (3.1950) has also come down now below 3.20 and may see some correction towards 3.15-3.10 in the near term.
Nymex WTI (97.67) has also fallen as said earlier and may soon test the crucial long term weekly support near 96 from where we may see a bounce upwards.
Brent (104.96) seems to have again entered a short term consolidation after the fall from 107.86 levels recently. No clear direction is known for now. Bears seem to dominate for now while below 106. While above 104.39 a sideways movement could be expected.
Euro (1.3368) is suffering from its failure to break above 1.3450 and has hit a new low at 1.3356. Unless 1.3450 is broken soon, the possibility of it reaching the support area of 1.33 will be stronger.
Dollar-Yen (102.53) is trading in the range of 101-103 as expected but now it may still attempt the difficult rise to 103.50-104 if it manages to sustain above 102.35-25. Euro-Yen (137.06) came down contrary to expectation on the back of a weakened Euro. It can hit 136.40-05 now if Euro continues to fall.
Pound (1.6876) bounced as expected but may find it difficult to handle the resistance at 1.6890-6900 now. It has signaled the end of its 9-month long uptrend and now every corrective rise may face selling pressure at the higher levels.
Aussie (0.9298) is stuck in the range of 0.9350-0.9250 and unless it manages to break this range, no trending move will emerge and sideways price action may prevail.
Dollar-Rupee (60.85) may have ended its correction at 60.70 yesterday, completely in line with our expectation. But that must be confirmed with a break above 61, signaling the resumption of the intermediate uptrend targeting new highs above 61.20.
Higher yields in India, unclear picture in Europe, curve flattening in the USA.
Indian 10Yr bond yields (8.8344% for the 2023 maturity and 8.6110% for the 2024 maturity) rose yesterday as the RBI's monetary policy stance was interpreted as hawkish. The RBI is reasonably alright with the target of 8% CPI by Jan-15, it is a little more cautious about whether 6% by Jan-16 will be achieved or not.
The rise in the older bond to 8.834% could be a little bearish for Indian Bonds going forward, but maybe global investors will welcome RBI's hawkishness.
The German-US 2Yr Spread (-0.44%) is showing chances of a small Double Bottom (see the first chart on the following page: http://www.kshitij.com/graphgallery/eurusddiff.shtml#eurusd) which suggests chances of further rise towards -0.40% if not higher. This seems to go against the market perception that the ECB Meeting tomorrow will push European yields lower. This is despite the charts suggesting further decline in Yields ahead. The slight uptick in the Italian and Spanish yields (mentioned yesterday) is finding Resistance now and can the yields could come off again. Only Greece (10Yr 6.44%) seems to be trying to form a bottom and rise. That could be a cause for concern.
In the USA, the 10-5 Yr Spread (0.82%) is holding below the long-term Resistance at 0.85%. The 30-5Yr Spread (1.62%) has strong Resistance now at 1.7%. Both point to further Curve flattening ahead.
12:30 GMT or 18:00 IST US Trade Balance
...Expected -44.20 $ Bln ...Previous -44.39 $ Bln
Australia Trade Balance
...Expected -2.00 A$ Bln ...Previous -2.04 A$ Bln ...Actual -1.68 A$ Bln
...Expected 2.50 % ...Previous 2.50 % ...Actual 2.50 %
RBI Repo Rate
...Previous - 8.00 % ...Actual 8.00 %
RBI Reverse Repo Rate
...Previous - 7.00 % ...Actual 7.00 %
...Previous - 4.00 % ...Actual 4.00 %
...Previous - 9.00 % ...Actual 9.00 %
EU Retail Sales
...Expected 0.40 % ...Previous 0.31 % ...Actual 0.41%