With US markets out of trading due to the Independence Day holiday, the risk environment was met with a calmer tone without much economic data. European markets were flat to slightly lower in a thin trading session, while at the time of writing, US stock futures were also in a wait-and-see mode.
Today’s market focus will be on the FOMC meeting minutes. With final interest rates expected to rise at their previous meeting, more clarity on policymakers’ views on this guidance will be sought in the coming minutes. However, the minutes may be seen as somewhat outdated, given that we had a string of positive economic surprises and a lower-than-expected core PCE inflation number following the Fed’s discussion. Market price expectations were also unaffected by the Fed’s previous hawkish rhetoric, suggesting it may have to take more Fed minutes to convince markets of a more hawkish outlook.
Having been trading largely in a long-term pattern since November last year, the Dow Jones Industrial Average is back to retest the upper edge of the consolidation zone once again at the 34,500 level. Having failed to find a break above that level on multiple occasions since late 2022, it has acted as a key level of resistance to watch, accompanied by the recent highs and lows on the daily relative strength index (RSI). The more value-focused DJIA is up 3.9% year-to-date, trailing the Nasdaq Composite by 33%. With talk of risk rally shifting to a broader base, a break above this level may be warranted to provide greater conviction for more catch-up performance in value stocks. Any break above 34,500 could pave the way for a retest of the April 2022 high after that.
Source: IG Charts
Asian Open Championship
Asian stocks seem poised to open a bit weaker, with the Nikkei -0.44%, ASX -0.26% and Kospi -0.24% at the time of writing. Chinese stocks managed to stay in the green yesterday, with the Hang Seng up 0.6%.
As a follow-up to China’s move to restrict key semiconductor manufacturing materials, the US plans to restrict China’s access to US cloud computing services, according to a report from The Wall Street Journal. Ahead of US Treasury Secretary Janet Yellen’s visit to Beijing this week, the latest action from both sides appears to be a display of their hardening stance in the bilateral relationship, potentially highlighting their competitive advantage for gaining leverage in any discussions. Any decision or inaction on the visit may take some focus in the coming week.
Ahead, China’s Services Purchasing Managers’ Index (PMI) reading will be on the radar today to provide clues as to how the country’s consumption-led economic recovery is performing. Since the beginning of the year, the reading has beaten expectations on 5 out of 6 previous occasions, which could translate to some near-term relief for Chinese stocks if the trend continues.
The outcome from the recent RBA meeting was a hawkish pause, which saw AUD/JPY rebound slightly to retest the 96.84 resistance level. This comes after the rebound from the ascending trend line at 95.34, which is also horizontal resistance turned into support. Having been trading at higher highs and higher lows since March this year, any move above 96.84 could set the sights for a retest of the year-to-date high, followed by 98.75.
Source: IG Charts
On the watch list: US dollar / Singapore dollar It is heading closer towards the top of the ascending triangle
After falling 10% since September 2022, buyers have been trying to regain some control since the beginning of this year, with an ascending triangle pattern forming in place year-to-date. Much remains to be seen for now, as bearish divergences on the RSI and MACD indicate waning bullish momentum on recent highs.
1.360 will be an immediate resistance to overcome in the future. The recent retest of the upper triangle trend line around 1.360 failed to find a breakout for the third occasion this year, leaving this level as a key resistance level to watch. Any subsequent move above this level may better reflect buyers’ control, which could pave the way for a retest of level 1.376 after that. On the downside, the upside down trend line of the triangle formation will act as support around 1.340.
Source: IG Charts
Tuesday: US markets closed for holiday, DAX -0.26%, FTSE -0.10%