Last week was quite disappointing for the local market as we gave up significant ground heading into the weekend, with no resolution in sight to the US government shutdown. As it stands we are currently pointing up 0.5% to 5234 after a slight bounce in the US on Friday. However, we feel this might be short lived as fresh headlines suggesting the two parties are still far apart might prompt some early profit taking. Additionally the NSW/TAS/SA public holiday will result in thin volume and this will prevent physical buying from underpinning equities. We feel the 5200 level will be the key support to watch in the near term.
Japan is eyeing a strong start with a likely 1.1% rise on reports the government is considering revising investment policy for public pension funds. This would allow the Government Pension Investment Fund to step up investment in growth stocks and reduce dependence on government bonds. BoJ Governor Haruhiko Kuroda will also be in the US this week pitching Abenomics with two speeches lined up. This makes for an interesting week for the Nikkei.
The pair enjoyed some relief on Friday as the USD regained some ground on anticipation a resolution to the shutdown was in sight. However, the pair is off to a poor start to the week, dropping to 97.14 ahead of the BoJ monthly report and leading indicators data. While we don’t expect this data to have a significant impact on price action, there is an increasingly bearish tone on the pair. The 200-day moving average comes in at 96.63 and if we see a close below this level, this could signal further near-term weakness.
There was a sharp decline in the pair after encountering resistance in the 1.626 region. This was mainly due to profit taking near the year’s high, but we are still eyeing buying the pair at lower levels given there is still uptrend support in place from July. The line comes in at around 1.60 and we would expect to see a bounce from there.
The price action on LEI shares looks increasingly bearish after being hammered last week on corruption allegations. On Friday LEI closed below key support at $17.50 and we feel this leaves it vulnerable for further losses in the near term. Next support is at around $15.80 and ahead of $15.
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