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It looks like Wall Street is set for its fifth consecutive week of gains, pushing forward another round of stellar gains overnight (DOW Jones Industrial Average +1.26%; S&P 500 +1.22%; NASDAQ +1.15%). Given that the Fed remains data-driven, market participants are not buying into the Fed’s hawkish guidance, with Fed funds futures continuing to price in another 25 basis point hike in July and a rate cut early in the year. next. This amounts to reversing the Fed’s guidance to raise 50 basis points by the end of 2023 and cut interest rates “after two years,” which may be seen as lacking commitment to the goal of avoiding complacency.
Overnight economic data saw US retail sales surprise positive (0.3%m/m vs -0.1% exp) as a reflection of resilient consumer demand. Whereas previous concerns were that strong consumer demand could fuel inflation, the broader trend of easing pricing pressures has put inflation risks somewhat in a backseat for the time being, with the narrative shifting towards whether a soft landing can be achieved. Combined with jobless claims numbers pointing to further progress in cooling an overheated US labor market, sentiment managed to resume risk mode after the data was released.
The Dow Jones Industrial Average has returned to retest the upper band of its consolidation pattern around the 34,400 level, as the index has failed to overcome at least five occasions since October last year, consolidating the level as crucial resistance. A breach of the upper band could pave the way for a retest of 35,300 next. The overall bullish trend remains intact, with the MACD heading above the zero line as a sign of bullish momentum building. In the event of a rebound, immediate support could be at 33800 (FED meeting rebound).
Source: IG Charts
Asian Open Championship
Asian stocks appear set for a mixed open, with the Nikkei -0.66%, ASX +0.54% and KOSPI +0.32% at the time of writing. The Nikkei pulled away from a positive delivery on Wall Street, which appears to be a sign of some near-term exhaustion with technical indicators heading into the overbought territory. Following the interest rate cuts coming out of China yesterday, the Hang Seng Index is hovering just below the psychological level of 20,000 in today’s session. Beating this level might support the bulls’ control more for the time being.
Economic data saw Singapore’s non-oil domestic exports (NODX) shrink for the eighth consecutive month (-14.7% vs. -1.3% consensus), with the significant weak performance reflecting greater risks to global demand conditions. Lower vs. longer growth forecasts for Singapore appear to be the answer, validating the downgrade in growth forecasts in 2023 to 1.4% (previously 1.9%) from this week’s MAS survey.
Ahead, the BoJ meeting will be in focus. Speculation of a faster policy shift from the BoJ hasn’t won much validation from policymakers yet, with dovish rhetoric from BoJ Governor Kazuo Ueda last week cementing expectations of no policy rate change for at least the next three policy meetings.
Market participants will look for any response to the continued downturn in Japan’s ‘core’ inflation (4.1% in April) but while a higher inflation picture may be acknowledged, the uneven recovery in Japan and wage growth still weak at 1 percentage may still offer some Reasoning for the central bank to justify its view of “transient inflation.”
USD/JPY has been trading within an ascending channel pattern since the beginning of the year, with a retest of the upper channel trend line overnight which faced some resistance on the fading US dollar. Lower highs on the RSI could signal some near-term exhaustion, with further downside leaving immediate support at 138.50 in check, followed by 136.70. However, the overall trend remains biased to the upside, with higher peaks and higher lows forming, along with a strong sit above the 100-day and 200-day moving averages (MA). Any failure to hold above the main 200-day moving average could be an indication of a trend reversal in the future.
Source: IG Charts
On watchlist: trending for EUR/USD It tends to be bullish after the European Central Bank meeting
The conclusion of this week’s meeting of the Federal Open Market Committee and the European Central Bank allowed EUR/USD to regain its 100-day moving average, as the US dollar failed to hold its recent gains while the European Central Bank pushed hawkish guidance at its latest meeting. The difference in policy remains the main driving force.
After a 25bp move yesterday, an upward revision in inflation expectations from the European Central Bank suggests firmer pricing pressures and more needs to be done. Endorsement was also sought from European Central Bank President Christine Lagarde, who anchored expectations for another hike in July and fended off any imminent policy pause in the hiking cycle.
The shift of the Supertrend indicator from red to green indicates that the EUR/USD trend is bullish. The RSI has also returned above the key 50 level, reflecting buyers’ control after a 4% rebound in May this year. With the formation of a new higher low, the pair may set its sights on the May 2023 high at 1.109, with any move above the level indicating a new higher high and strengthening the general bullish trend.
Source: IG Charts
Thursday: DJIA + 1.26%; S&P 500 +1.22%; Nasdaq +1.15%, DAX -0.13%, FTSE +0.34%.