The US Federal Reserve’s policy shift to “average inflation targeting” will be positive for equities as interest rates remain low and stimulus instruments continue. While stocks may move up in the coming days on the back of this recent development, we see little room on the upside as there is strong resistance on large resistors. As such, we prefer to be cautious after a while as the index gets closer to these resistors and will be looking for the chances of a sharp correction. The key resistances to look at are 29000-29500 on down, 13800 on DAX, 24000 on Nikkei, 40,000 on Sensex and 12000 on Nifty. Shanghai is likely to remain in a wide range.
The Dow (28492.27, +160.35, + 0.57%) has risen well above 28300 and has tested 28500 in line with our expectations. The bullish view of looking 29000 upside down remains intact. Although the upside may extend up to 29500, we prefer to be cautious in the 29000-29500 region and will be looking for a corrective fall thereafter.
DAX (13096.36, −93.79, -0.71%) seems to be fighting to offend 13200. While below 13200 there is a dip to 12800 again can not be ruled out and a range of 12800-13200 can be seen in some time. While above 12800, however, the pre-earnings remain bullish to see a break above 13200 and a rise to 13800.
The Nikkei (23293.07, +84.21, + 0.36%) remains stable below the 23300-23400 resistance zone. As mentioned yesterday, the Nikkei may remain in the range of 22700-23400 while staying below 23400. The bias continues to remain bullish as to see a break above 23400 and a rise to 23800-24000 eventually. As we have mentioned for some time, 24000 is a strong resistance from which a sharp corrective fall is possible.
Shanghai (3352.20, +2.09, + 0.06%) is trying to jump back over 3350. Inability to maintain this stud may pull Shanghai lower to 3250 in the coming days. We will have to wait and see how the index closes for the week today. Currently, the wider 3180-3450 / 70 range remains intact, and Shanghai is currently moving within this range.
Nifty (11559.25, +9.65, + 0.08%) tested 11600 as expected and has come from the high level of 11617.35. Inability to bounce back over 11600 could immediately see an intermediate dip to test the support at 11400 before bouncing back again. While above 11400, our broader bullish view remains intact to test 11750-11800 upside down. As mentioned yesterday, 11800-12000 will be an important region to be aware of for the chances of sharp correction falling from there.
Sensex (39113.47, +39.55, + 0.10%) on the other hand has moved well above 39000. While above 39000 our bullish perception of seeing 39500-40000 upside down remains intact. As mentioned yesterday, there are chances to see a corrective dip from around 40,000 that we will have to wait and see.
Raw residues varied, while gold has dipped slightly. Gold remains above the support level and may soon bounce back in the short term. Silver may also rise while it is above 26. Copper has moved up to test crucial resistance at 3.05, which should be used higher to start fresh rally.
Brent (45.62) and WTI (43.00) both appear to be at the moment. We are looking for a steady increase towards 47.50 and 44-45 in the medium term.
Gold (1943.10) is dipped and maintained the laterally corrective interval below 2000 and above 1920. While the above support in 1920, the prospect of seeing a setback towards 1960/80 is soon.
Silver (27.47) trades over 27 and could be led to 28-29 in the short term. The outlook is bullish, while it is above 26.
Copper (3.0130) has managed to rise again above 3, but needs to break above 3.05 to maintain the upward momentum and launch a fresh rally in the medium term. See price action near 3.05.
The dollar index and euro look stable, while the pound, Aussie, EURJPY, USDJPY, Yuan and Rupee are trading strong and may remain so in the short term.
The dollar index (92.96) fell after the speech by Jerome Powell, in which he mentioned that the Fed would target an inflation average of 2%, while now emphasis would be placed on seeking maximum employment; but the index rose back to close close to 93. The dollar index is trading steadily near the levels seen yesterday and could continue to remain in the 94-92 region for some sessions before deciding to move in both directions from here.
The Euro (1.1832) is also stuck within a wide range of 1.1750 and 1.19 and may remain so while the dollar index trades sideways. The immediate point of view is to see consolidation.
EURJPY (126.37) has risen above 126 contrary to our expectation of seeing a varied move within 125-126. An increase towards 127 is on the cards for the upcoming sessions.
The dollar-yen (106.82) has risen again after producing a sharp jump from yesterday’s intra-day low of 105.58. A further increase from here, if maintained above 107, may be bullish in the short to medium term against 107.50.
The Aussie (0.7279) can move up to 0.74 in the short term, while above 0.7193. The current picture is of an increase that can gain momentum if copper manages to rise above 3.05 (see the section on commodities above).
Pound (1.3228) was able to move up to test 1.33 on his head as mentioned yesterday before seeing another dip from there. A wide range of 1.33-1.299 can last for some time.
USDCNY (6.8788) has moved down further in line with our expectations and was soon able to test 6.85 before showing a corrective rejection from there. The overall view is bearish, while it is below 6.90.
USDINR (73.81) just closed with a significant support of 73.80, exactly in line with our expectations. A decline of 73.80 can be seen today, but if the Euro and Yuan continue to strengthen in the short term, we can expect the USDINR to be pulled below 73.80 as well. See price action near 73.80 today.
The US Federal Reserve’s policy shift over inflation to “average inflation targeting” has taken the Treasury dividend, especially at the end (10Yr and 30Yr) sharply higher yesterday. With the new policy, the Fed will now leave inflation above 2% for some time before deciding to raise rates. Treasury rates have room to move on and test their strong long-term resistance in the coming weeks. German yields remain higher and stable. The main resistances are forward, which must be broken to reject the broader bearish view. 10Yr GoI can consolidate sideways for some time before resuming the trend.
US 2Yr (0.16%), 5Yr (0.32%), 10Yr (0.77%) and 30Yr (1.55%) government returns have increased, especially at the end. 10Yr has risen above 0.70% and is heading towards 0.80% much faster than we had expected. It can accommodate to test 0.90% on the upside while above 0.70%. 30Yr on the other hand has broken well above our preferred level of 1.50% and can now target 1.65% -1.68% – a crucial long-term resistance region that wants to keep a close eye on.
The German 2Yr (-0.67%), 5Yr (-0.64%), 10Yr (-0.41%) and 30Yr (0.05%) remain higher but stable. We repeat that an increase above -0.39% compared to 10-year-olds will ignore our previous bearish perception and may see -0.30% upside. 30Yr is heading towards 0.07% as expected and it remains to be seen whether it can break above that or not. Generally, we will have to wait and see for a few sessions to get clarity.
10-year GOI (6.1483%) was dipped yesterday. A range between 6.10% and 6.23% is possible for some time. While above 6.10%, our broader bullish view remains intact to see 6.30% -6.35% upward gradually.