Tuesday August 12, 2014 - 03:36:53 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 12-Aug-2014 -0336 GMT
The global equity rally on Monday has been accompanied by no-events in the Bonds or Currencies and that makes the bullishness at least a little bit suspect. Stay cautious. The Indian market awaits the IIP & CPI data today.
Dow (16569.98, +0.10%) just consolidated at the higher levels in a very narrow range after the sharp rally on Friday. Further extension of the rally may face resistance from 16700-800 levels. Dax (9180.74, +1.90%) reached our target of 9200 in a single session and now the sellers may be back from 9250-9400 as the long term downtrend remains in force below 9300-400.
Nikkei (15179.88, +0.33%) is struggling near 15250-400 area as expected and that keeps the bearish risk active for this index. Shanghai (2214.84, -0.44%) consolidation in the range of 2180-2230 continues with the bullish bias fully intact. It may attempt a rally to the final long term resistance of 2260-70 after this consolidation.
Nifty (7625.95, +0.76%) is trading in the range of 7500-7800 and if it manages to break above 7700-10, may test the upper end of the range too. But keep an eye of CNX IT which, if breaks 10290, may drag the broader market down.
Gold (1306.99) is ranged for now above 1305 but has a fair possibility of coming down to 1300-1290 in the coming sessions while the resistance near 1333 still holds. Silver (19.992) is ranged in the 19.7-20.108 region. No clarity is seen unless a break on either side of this range occurs. Gold-Silver ratio (65.345) came off sharply from 65.92 and may come down further towards 64.4 in the near term.
Nymex WTI (97.81) though has bounced from support near 96 does not seem to be rising up with a force. Momentum is slow and rise may be limited for now. A sharp rise is needed towards 100-101.81 else a danger of breaking below 96 could be seen in the near term.
Brent (104.50) has fallen further testing support near current levels. If it does not rebound it may either remain in a sideways consolidation for sometime or break below 104.5 to target 100-99 levels.
Copper (3.1565) dropped sharply after hitting resistance near 3.24 yesterday. Copper may be under pressure for sometime while inflationary pressures hover around China. Near term is bullish while above 3.15, but a break below 3.15-3.10 may reverse the scenario.
A quiet day for the currencies. Dollar gains a little against nearly all the majors.
Euro (1.3371) is weakening again and a break below 1.3370-60 will decrease the possibility of the expected rally towards 1.3450-75 considerably and increase the chances of testing 1.33 levels.
Dollar-Yen (102.30) is trading in the range of 101-and the range bound price action doesn’t look like ending anytime soon. Euro-Yen (136.78) has been trading in a downward channel for the last few days and the range now may be modified to 135.75-138.00, which may not break without any major event.
Pound (1.6774) has been making new lows as expected but now a corrective bounce to 1.68-69 levels may be not that unexpected. A failure to bounce would mean an immediate fall to 1.6740-6700 levels.
Aussie (0.9259) is wandering about the long term support zone of 0.9250-9200 again, which defines the nearly 5 month long range of 0.92-0.95. Only a break below 0.92 would reverse the medium and long term trend to bearish.
Dollar-Rupee (61.17) retraced even less than a third of the previous fall in its corrective bounce. The probability of testing 60.70-50 is still much higher. Expect 61.40-50 to act as a strong supply zone.
The US 10-5 Yr Spread (0.81%) has risen a bit but still below the resistance of 0.85% while the 30-10 Yr Spread (0.82%) is rising towards 0.85-0.90%. This may indicate that the 10Yr (2.43%) is likely to continue its long term down trend moving down against the 5yr and the 30yr yields.
The German 2Yr (-0.01%) has again dipped into the negative against our expectation of a rise towards 0.12% before the EU CPI on Thursday (current Y/y 0.39%, expected 0.40%). However, if the yield may come into positive zone again over the coming weeks while our upper target remains at 0.12%. Keep an eye on this. Look at charts on http://www.kshitij.com/graphgallery/eursin00.shtml#sin00
The US-Japan 10Yr spread (1.92%) is still below the 1.97% levels and while the fall sustains we may see levels of 1.85% in the near term which could bring in some strength for the Japanese Yen (102.3). But also note that if the yield spread bounces from 1.90% levels, it may contribute to Yen weakness.
In India, the Indo-US 10Yr Spread (6.16%) has come off sharply from Friday’s close of 6.21%. While the resistance holds it may come down to 6.15-6.10% in the coming sessions. Watch CPI data to be released today (current 7.31%) as it may have a crucial impact on the yields.
12:00 GMT or 17:30 IST IN IIP
...Previous - 4.70 %
12:00 GMT or 17:30 IST IN CPI
...Previous - 7.31
No major data release yesterday.