Vital technical support levels for market:
USDJPY: 110; below this 107-103 possible and more global panic.
SPF: 1800; below that 1790-1780 strong positional support.
NF: 6940-6885*-6745; sustain below 6885 it may fall further towards 6550-6350 zone; otherwise bounce back up to 7225-7410 is possible in the short term.
As global markets melt down and running towards a virtual capitulation stage for various factors originating primarily from massive slump in Oil & other commodities prices, risk trade is off and there is a flight of safety towards Japanese Yen. As a result, USDJPY was dangerously close to 110 level yesterday, which may be an "intolerance" zone for the BOJ as all the QQE policy is designed by it for the last few years is to keep the USDJPY above 115 level (preference range 115-125) for an edge on the Japanese exports.
There is some market chatters of "real" BOJ intervention and we are already hearing some Japanese comments about the Fx market (verbal intervention).
On the other side, although weak USD is beneficial for US exports, the overall global market turmoil is not good for US economy too and FED's "script" is slowly changing too !!
There is virtually no chance for any further US rate hike before Dec'16 and that too seems most doubtful now, considering the China slowdown and global market turbulence. Although Yellen is trying to keep a "brave face" for the real economy of US and the Dec'15 rate hike stance, she is slowly changing her "script" and now thinking about legal possibility of negative interest rate (NIRP) in US or even revert back to previous zero rate.
ECB is ready with its "bazooka" and may even buy back bank shares (DB ??) from the market as a part of its QQE.
China, on their part has now virtually no option but to allow its Yuan to devalue, preferably in an orderly manner. USD reserve of China is depleting fast in their effort to fight against "evil Yuan speculators" (various big US hedge funds, who took massive Yuan short positions for a probability of Yuan target of around 6.95-7.05 in the near term).
PBOC certainly wants to devalue its currency to give more thrust on the Chinese exports, but not at the present "speculative" way. But, it has now virtually no option, but to allow further Yuan devaluation to ramp up its exports and reduce import bills to shore up the USD reserve, which is dangerously near the alarm zone and now stands around $3.1 trillion with an average $100 bln outflow for the last few months.
Bottom line:
We may see immediate BOJ intervention backed by other major central bankers of the world including G7 countries to avert a possible "dooms day" in the global financial market.
Although, effectiveness of further real QQE is doubtful, but its necessary to keep the "Wall Street" in stable condition and then attempt for any structural changes/policy for the "real street".
Its the "easy money" (QQE), which is largely responsible for reckless capacity addition in commodity space (for example Oil, Steel etc) and has created the present huge imbalance in demand/supply imbalance. Effectively, QQE was not able to create so much demand for Oil in comparison for its over production (supply glut).
Now, even there is storage problem surfacing for the Oil and its not so much easy to have an universal cut (even 5%) for Oil production as various types of contradictory geo-political factors involved here. As par some reports, we may see Oil demand/supply re-balancing only by CY-2017 as by then, a large numbers of Oil firms may be forced to shut down because around $30-35 Oil, most of non-OPEC Oil firms are running below their break even.
Even for OPEC, which has cost of production anything between $10-20, the present average price of $30-35 is causing a serious strain on their finances and domestic economy and various SWF are selling their equity/bond holdings in the global market to make up the possible budget short fall. This is the primary reason for global market melt down and China, DB is just acting as a catalyst.
The growing fear of full blown bankruptcies of may Oil firms and its effect on bank exposoure & jobs is the prime concern for the market.
For Indian market, nothing will work, until global sentiment improves and the present NPA issues is indicating towards a full blown banking crisis here.
Next week Monday/Tuesday will be interesting for the market as China will return on Monday and there is also US holiday on that day.
Analytical Charts:
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