GOOD MORNING! STOCKS
Most Equitie indices worldwide are up between 0.50-2.00% on the ECB QE news yesterday. More money, asset prices will go up, even as growth slows down everywhere except USA. Bubble? We'll think of that later. Even the Dax (10435.62, +1.32%) was up a decent bit.
The Dow (17813.98, +1.48%) and Nikkei (17464.40, +0.78%) trade higher and can target 18200 and 17600+ respectively. Beware chances of at least mild profit-taking there as these are decently strong Resistances.
The Shanghai (3343, -0.5 pts) is quiet, as though nothing has happened. As mentioned yesterday, we are looking for a range of 3100-3400 for some weeks. This range may have to be adjusted a little to the upside to 3200-3450.
We can expect the Nifty (8761.4) to open higher, of course. The SGX Nifty is trading near 8870. Some Resistance seen at 8900 though.
Death of King Abdullah, the King of Saudi Arabia, might have thrown commodities market into uncertainities. Though he was ailing for long time and not active in administration, the oil markets will closely watch for any change in policies by the new regime under King Salman.
Gold (1,299.01) topped exactly at 1307 resistance before it moved down. If the theory of Gold bullishness on monetary easing was in play, ECB's trillion Euro QE was the best time to indicate it. However, the lack of movement in Gold seems to indicate otherwise. This gives considerable evidence to deflationary theory. Technicall, as long as Gold trades below 1307, the trades would be with a bearish bias.
Silver (18.32) has moved to 200DMA. A break above will be bullish. However, for the day and short term, this will be a good level to short with the stops above 18.40. The targets and the supports on the downsides are 17.60 and 16.90.
Copper (2.5430) has broken below again and may now be setting up for a nice fall. The resistances are at 2.62-2.63 levels, with the first target at 2.42.
Nymex WTI ($47.13) was unable to break above 50, again and quicfkly gave up all the gains. The market is likely to trade in a range of $50-46, with a bearish bias.
Brent Crude ($49.39) has consolidated between $48-50 and this range becomes crucial for the next breakout. The larger trend however remains down. $45.50 support remains crucial.
ECB's QE was very large and seemed to raise more questions, than offer answers and solutions. This is probably not the last we have heard on this subject.
DOLLAR INDEX (94.14) made a high of 94.50 on frentic Dollar buying after ECB's announcements. Dollar Index has gained close to 20% since the mid-2014 bottoms at 78.9. The trend remains up. The long term down trend line from the Bretton Woods top (1984) has been now broken conclusively. The next resistance on charts is at 97.
Euro (1.1360) has broken below most supports now. The next support comes in at 1.1212, the 61% retracement of the move from 0.8371 (Nov 2000) to 1.6018 (Apr 2008). 1.1650 is now a strong capitulation resistance. The immediate resistances are at 1.1460, followed by 1.1550.
Pound-Dollar's (1.5015) broke below its 1.50 support but has regained it as we write. The breakdown from 15-day consolidation near 1.5050-1.5250 seems to indicate a larger move down. This would also imply a breaking of long term support trend line coming up from the 1984 botoms. See the chart here: http://www.kshitij.com/graphgallery/gbpmth.shtml#mth The immediate support and target below 1.50 is at 1.48 (at 2013 bottoms)
Euro-Pound (0.7568) has broken below 0.76 levels confirming that downtrend is intact and the large pattern break could be in play. The bearish pattern on weekly charts suggests targets of 0.7250 and lower. However, there is a second probability although lesser in estimate that 0.7560 could form the support for Euro-Pound, which would be in sync with weakness in Pound-Dollar were it to break below 1.50.
Euro-YEN (134.5050) has broken below 135 support. As long as Euro-Yen trades below 135, we would see the bear trend intact. The zone of 135 to 137 will offer good resistance.
Dollar-Yen (118.41) moved higher on good Dollar strength. The long term charts and positioning seems to suggest continued consolidation over medium term. It could be possible that Dollar-Yen is making a large triangle formation with 115.50-116 as its base. This would indicate that the range will be compressed as we go forward. This might coincide with consolidation in Dollar index.
DOLLAR-RUPEE (61.70) is likely to open weaker. The support is at 61.40-61.30.
Basically... the ECB QE was needed. Will deliver some impact, but may not be enough for the longer term. Govts need to get their acts together, need to really come together, behave as one country/ family. That is what the market will look for going forward. The market may be OK with Draghi and ECB. It is the goverments that will have to come good now. Else confidence will not be strong enough in the longer term. Given human nature, European history and current leadership in Europe, the chances of a heroic pan-European consensus emerging are small.
The Euro has been sold because foreigners want out from this scenario.
Coming to bonds, the "capital key" criteria on deciding how much of the QE money goes to buying which country's bonds skews the allocation towards buying more of German Bunds than Greek bonds, where money is needed more incidentally. If Germany opposes, God help Europe. Or in other words, if Germans and Greeks continue to hate each other, why should the world lend money to them together? Greek, Spanish bonds will be sold. German bunds will be bought.
This was the initial reaction to Draghi's presser. Bund yields fell where Greek, Spanish, Portuguese yields went up. But, later on the southern-Europe bonds were also bought. Yields have fallen for most countries as follows:
German 10Yr down 7.8bp (or 14.9%) from 0.524% to 0.446%
Greek10Yr down 39.4bp (or 4.2%) from 9.364% to 8.97%
Spain 10Yr down 13.85bp (or 9.09%) from 1.5235% to 1.385%
Italy 10Yr down 14.3bp (or 8.19%) from 1.7465% to 1.6035%.
The above table shows that the demand for German Bunds has been much higher than that of the other countries, especially Greece.
Initial reaction to the ECB QE may be good for Rupee. But later the real global economy and hence also India and Rupee could get hit if the real people in Europe do not rise to the challenge, to the call of the hour.
Two very good analyses on ECB's QE:
12:30 GMT or 18:00 IST CA Inflation Y/Y
...Previous 2.00 %
15:00 GMT or 20:30 IST US Existing Home Sales
...Expected 5080 K ...Previous 4930 K
11:45 GMT or 17:15 IST ECB Meeting
...Expected 0.05 % ...Previous 0.05 % ... Actual 0.05%