Asia morning update
Major US indices attempt to recover last week’s losses, as broad-based strength across all 11 sectors marks a stark reversal from earlier weakness.
The flattening of the yield curve seen last week seems to be taking a pause yesterday, with a fall in short-term rates and rise in longer-term yields overnight. This is accompanied with comments from Fed member John Williams, who seems to take on a more dovish stance and give the green light for the rally later in the day.
The S&P 500 seems to be trading within an ascending channel since November last year and overnight movement saw a rebound from its lower trendline as the index attempts to overcome last week’s downside action. This also marks a re-test of the Fibonacci extension 161.8% level at 4,134, which has supported prices on previous two occasions. One may potentially choose to trade within the ascending channel pattern until a break of either the upper or lower trendline occurs.
Ahead today, one may look towards the Eurozone consumer confidence flash and the US existing home sales in terms of economic indicators. The key highlight will be Fed Chair Jerome Powell’s testimony, with his previous comments in the FOMC meeting causing a spike in bond yields. That said, markets have been adjusting their expectations over the past few days of having reduced policy support ahead. His latest remarks ahead of his testimony also seem to take on a dovish stance by reiterating inflation being ‘transitory’, with one to watch if it is able to ease investors’ concerns ahead.
Asia stocks are set to track the rebound in major US indices overnight, with Nikkei +2.41%, ASX +1.37% and KOSPI +0.64% at the time of writing. This comes with a pause in the flattening of the yield curve, supporting sentiments back to reopening and cyclical sectors.
The Japan 225 index has formed a bullish hammer candlestick, with one to watch for a close above the candlestick for a validation. That said, the index will have to overcome several key resistance levels ahead, with the near-term immediate resistance being the 100-day MA. The 29,200 level will also be one to watch, with resistance expected from the downward trendline, formed from a series of lower highs since February. Support level may be at the 27,700 region.
On the watchlist: EUR/USD stabilises at support level
The EUR/USD is attempting to recover earlier losses after plunging to its two-month low on a stronger US dollar. The downside pressure in the currency pair over the past week may be due to a divergence in policy stances between the Fed and the ECB, where a hawkish tilt in the Fed meeting last week marks a stark difference compared to ECB’s dovish stance with its avoidance of taper talks at its recent meeting.
That said, the currency pair is attempting to rebound off the 1.185 level. This comes after a series of smaller candlestick bodies suggests that the sell-off is easing, with the RSI reverting from oversold region back to neutral territory. Resistance ahead may be at 1.196 and near-term support may remain at the 1.185 level.
Monday: S&P 500 +1.40%; DJIA +1.76%; Nasdaq +0.79%; DAX +1.00%; FTSE +0.64%
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