Thursday October 16, 2014 - 03:50:27 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 16-Oct-2014 -0349 GMT
It was one of the most volatile days in the recent times yesterday and thankfully, the Indian market was closed. The global markets continue the meltdown but the sharp intraday recovery in Dow and the proximity of a major support in Nikkei suggests a probable bottom. Keep watching.
The Dow (16141.74, -1.06%) has tested our major support level of 16000 by a sharp drop to 15855 and a sharper recovery of 300 points to close higher. We may have seen the intermediate bottom at 15855 but only a break above 16500 will boost this possibility. Dax (8571.95, -2.87%) remains in a very weak position as it gets closer to our 8400. If the bearish momentum retains this intensity and 8500-8400 fails to produce even a small bounce, then 8000 can be expected within 2-4 days.
Shanghai (2376.50, +0.12%) is in a pause mode as expected after correcting from 2390 and may continue for a few more sessions. The Nikkei (14762.27, -2.06%) structural weakness is more pronounced now as it reaches within sniffing distance of the major trendline support at 14600-550. A bounce from this support can keep the index in the long term range of 14500-16500.
Nifty (7864.00, -0.26%) has been rejected from our resistance of 7925 on Tuesday and remains stuck in the range of 7780-7925. Our major trend reversal level remains at 7975 and below that, the trend remains weak with downside risk.
Commodities are mixed. Near term is bearish for Crude while Copper is ranged. Gold and Silver may rise for a few sessions.
Gold (1238.42) made an intra-day high of 1249 yesterday as Dollar fell after a lower than expected US retail and PPI data. A sustained break above 1245 may take it higher towards 1264 but before that we may see a ranged move below 1250. Silver (17.446) is moving very steadily and the moves have been tight in the past few sessions. A rise towards 18 may be expected but take a few more sessions. Near term remains positive.
Nymex WTI (80.92) has fallen sharply to levels last seen in Juní12 and the target of 77.3 is not very far off. 77.3 is a crucial support and we need to see if this can bring a pause to the prices. Brent (83.35) continues to fall and may extend to 75-70 in the coming weeks. Bears are strongly dominant. Near term strongly bearish.
Copper (3.0115) has been hit sharply yesterday. The broad range of 3.00-3.10 continues to hold for now. No major movement expected unless a break on either side is seen.
Perhaps it is the time for the Dollar (84.88) to raise its head again. Definitely it requires further confirmation but Euro & Yen are close to strong resistance. If that really happens, Dollar Rupee may rip higher towards 62.
Euro (1.2828) rallied within 15 pips of our target area of 1.2900-50 but a failure to break above 1.29 immediately may terminate the bounce and bring back the major downtrend in force. Euro bulls should be cautious now.
Dollar-Yen (106.01) has achieved all our targets till 105.50 very fast as it bounced from a low of 105.20. It may try to bounce from the current levels or 104.70-50 area. The Euro-Yen Cross (135.96) made a new low at 135, contrary to expectations, but the revised support at 135.00-134.70 may hold for the next week and produce a bounce, especially if Yen weakens now as expected.
Pound (1.5992) hit the new low at 1.5875 just as expected but no strong buyers are visible yet. The support area of 1.5900-1.5850 must hold for even a temporary bounce or 1.57 would be tested quickly.
Aussie (0.8793) remains in the sideways corrective mode as expected but the resolution may be coming soon in the next 2-3 sessions. A break of the range 0.8650-0.8900 is required to produce a trending move.
Dollar-Rupee (61.41) held above 60.85 and tested our 61.35-50 area. Today the Dollar bulls must break above 61.50-55 supply zone before considering higher levels. Otherwise, more trading may continue in the band of 60.85-61.50.
"Flight to safety" flows in US and German bonds on growth concerns in both USA and Europe. Very worrying.
Regarding US Yields, on Monday, 14-Oct, we had said, "A sharp bounce is needed from current levels to avoid the danger of much lower levels. But, the fall in the Dow (16321, -223, -1.35%) does not inspire confidence." As it turns out, US Yields were both highly volatile and saw a strong decline yesterday. The US 10Yr (2.107%) fell to a low near 1.88% at one point before recovering a bit, but still closing substantially lower than the 2.19% the day before. With this, a long-term top is firmly in place and sub-2.0% levels are likely going ahead.
The 5Yr (1.307%) might target 1.0% in coming weeks and the 30Yr (2.907%) can test 2.80% at least. The 10-5Yr Spread (0.80%) has moved up from 0.76% earlier and a firm Double Bottom is now in place. Further rise towards 0.85% is possible. The 30-10Yr Spread (0.80%) can also move up further towards 0.85%.
The decline in yields is indeed worrying from a growth perspective, with the danger that lower yields this time around may not be able to do as much earlier times for the markets and for the economy.
There's been a sharp rise in the German-US 2Yr Spread (-0.364%) from -0.42% the day before, which has pulled Euro-Dollar (1.2827) sharply higher as well. The 10Yr Spread (1.353%) has not moved up much, though, at the German 10Yr (0.754%) has also plunged from 0.81% earlier. At the same time, the Greek 10Y (7.824%) has seen a sharp rise, indicating chances of fresh trouble in Europe. Flight to safety to German Bunds happening there. Not nice.
The US-Japan 10Yr spread (1.631%) has strongly broken an uptrend line coming up from Jul-12, pulling Dollar-Yen (105.98) down with it. This is a rude interupption to the earlier uptrend in Dollar-Yen that was to target 115+.
The Indo-US 10Yr Spread is also likely to drop today, to adjust for the decline in the US 10Yr last night. This could aid the Rupee a bit.
9:00 GMT or 14:30 IST EU CPI (YoY)
...Expected 0.35 % ...Previous 0.37 %
9:00 GMT or 14:30 IST EU Trade Bal
...Expected 13.5 EUR Bln ...Previous 12.20 EUR Bln
13:15 GMT or 18:45 IST US Industrial Production
...Expected 0.40 % ...Previous -0.10 %
13:15 GMT or 18:45 IST US Capacity Utilization
...Expected 79.0 % ...Previous 78.8 %
14:00 GMT or 19:30 IST US Philifed Index
...Expected 19.90 ...Previous 22.50
13:00 GMT or 18:30 IST US TICS (Net foreign purch of long-term Sec)
...Expected 23.3 $ Bln ...Previous -18.63 $ Bln
CN PPI (YoY)
...Expected -1.4 ...Previous -1.2 ...Actual -1.80
CN CPI (YoY)
...Expected 1.7 ...Previous 2.0 ...Actual 1.60
...Expected 6.1 % ...Previous 6.2 % ...Actual 6.0 %
US PPI ex Food & Energy (MoM)
...Expected 0.10 % ...Previous 0.05 % ...Actual 0.00 %
US Retail Sales (MoM)
...Expected 0.00 % ...Previous 0.59 % ...Actual -0.43 %