Friday October 31, 2014 - 03:36:55 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 31-Oct-2014 -0336 GMT
Better than expected US Q3 GDP (3.5%) and the much bigger contribution of government spending (0.83%) to that came as a pleasant surprise. Nearly all the major markets (except Europe) are hitting new life high or tantalizingly close to it.
The Dow (17195.42, +1.30%) is rising with a lot of bullish momentum but still a bout of profit booking near the band of 17350-500 canít be ruled out. The major trend remains up and any dip may be taken as a minor correction only.
The Dax (9114.84, +0.35%) is grinding upwards in a perfect channel but seems hesitant to rise past 9200, which keeps it vulnerable to fresh declines in the medium term, as the big Bear SHS is still in play. A rise past 9200 and 9400 is needed to negate the bearishness.
The Nikkei (15933.22, +1.76%) managed a close above 15600 and almost reached the target of 16000 already. The 2014 high around 16300 may be challenged next as the structural weakness observed earlier is negated.
The Shanghai (2385.20, -0.25%) has faced selling pressure near 2410 this morning as anticipated yesterday. Though it has hit a new year high today, the sharp rise this week keeps it vulnerable to some more profit booking.
The Nifty (8169.20, +0.97%) has hit a new life high at 8181 yesterday and is expected to make another new high today on the back of global cues. The improvement in the market breadth may push it further up, with intermittent corrections, towards 8450-8500 in the next few days.
Investors seem to have pulled out from the commodity sector as globally commodities have sharply been taken into control by the bears. Near term remains bearish.
Gold (1196.9) is headed sharply down as expected after the Federal Reserve decided to end its bond purchase program amidst strong US economy. It may test the crucial 1180 in a few sessions from where a short upward correction could be seen. However, a fall below 1180 could be very dangerous taking it to levels last seen in 2002.
Silver (16.374) sharply slumped to expected 16-16.5 levels showing signs of strong bears in force. No escape is visible just now and the fall may extend to lower levels of 16-14 in the near term before rising afresh.
Nymex WTI (80.95) and Brent (85.96) have not been an exception to the falling commodity prices. Tehe fall in Crude prices have been little compared to those in the metals but we cannot negate a fall to 78 and 82 levels respectively. Brent needs to rise and sustain above 88.5 while Nymex needs to cross 84 to show some indication of s fresh move upwards.
Copper (3.0630) has fallen after being hit by resistance near 3.1140 and may continue to fall towards 3.00-2.95 before again rising towards 3.10. Overall the long term trend is down.
German October CPI (0.3%) has fallen more than expected and raised questions regarding deflationary questions. Naturally Euro remains in a weak state along with Pound. A rising Nikkei, on the back of Japanese Pension fund shifting assets to equities, is helping the Dollar bulls against the Yen.
The Euro (1.2598) hasnít really added to its loss till now but the target of 1.25 remains unchanged. The bearish momentum remains strong below our old resistance of 1.2780. The Pound (1.5989) suffered from a false breakout this week, suggesting the importance of 1.6200-30 as the major resistance now and a strong possibility of retesting 1.5875 and then 1.58.
Dollar-Yen (109.36) looks set to rise towards 110 and possibly higher but a pause for 1-2 days before that canít be ruled out. The Euro-Yen Cross (137.60) is stalling after achieving our target of 138 and even on further rally, faces a big hurdle at 138.50.
Aussie (0.8823) has found some buyers from our support of 0.8750 but it must be noted that the entire sideways move in the broader range of roughly 0.87-0.89 can be taken as a bearish consolidation only.
Dollar-Rupee (61.45) is expected to hold above the support of 61.10 on any corrective dip and it may rise towards 61.75 gradually over the next few sessions.
US Curve continues to flatten. Globally, Yield advantage remains with the Dollar. Indian yields edge lower.
US Yields have come off a little from the Resistances mentioned over the last two days. The 2Yr (0.47%), 5Yr (1.562%) and 10Yr (2.295%) are all down from 0.48%, 1.58% and 2.31% the day before. Resistance seen at 1.60% and 2.35-40% on the 5Yr and 10Yr respectively.
The strong US Q3-Advance GDP (4.5% q/q) beat market estimates of 3.10%, but the current 4th quarter could see a moderation towards 3%. See http://www.kshitij.com/fundamentals/funcharts/usgdp.shtml
We'd warned about continued Curve flattening yesterday. The 10-5Yr Spread (0.71%) is down from levels of 0.78% (23-Oct) in a move that negates an earlier Double Bottom possibility, reinforcing the Curve flattening idea.
The German-US 2Yr (-0.52%) and 10Yr (-1.45%) continue to trend lower. The German 10Yr (0.848%) is in a downtrend that can test 0.80% at least, possibly lower. Interestingly, the German 2Yr (-0.0495%) continues to rise slowly from its strong Support at -0.10%, but still has a long time to go before it comes to 0.0%.
The US-Japan 10Yr spread (1.83%) is pausing in its bounce from 1.53% and may want to consolidate a bit before rising further towards 1.90%, likely to be led by a rise in the US 2Yr towards 0.52%.
Indian 10Yr GOI (8.2888%) broke below 8.30% yesterday and is in line to test our target of 8.25%, possibly lower.
23:05 GMT or 4:35 IST UK Cons Conf
...Expected 0 ...Previous -1
23:30 GMT or 5:00 IST JP Unemp
...Expected 3.60 % ...Previous 3.50 % ...Actual 3.60 %
1:30 GMT or 7:00 IST AU PPI
...Previous -0.10 % ...Actual 0.2 % ...Previous 0.2 %
9:00 GMT or 14:30 IST EU Unemp
...Expected 11.5 % ...Previous 11.50 %
12:30 GMT or 18:00 IST US Personal Income
...Expected 0.30 % ...Previous 0.32 %
12:30 GMT or 18:00 IST US PCE Price Index M/M
...Expected 0.40 % ...Previous 0.48 %
12:30 GMT or 18:00 IST CA GDP
...Previous 0.00 %
EU Biz Climate
...Expected 99.5 ...Previous 99.9 ...Actual 100.70
...Expected 3.10 % ...Previous 4.50 % ...Actual 3.50 %