US Dollar, Nikkei 225, AUD/JPY

Market summary

Earnings from Netflix and Tesla sparked some profit-taking at big tech companies overnight, as pockets of weakness in their results appear to raise concerns about other upcoming big tech results as well. Given the tech’s stellar rally since the beginning of the year, market participants may price not just an earnings win, but strong guidance in corporate earnings over the coming quarters with the current “soft landing” hopes in mind. Any signs to challenge this narrative may require some reclassification in their current lofty assessment.

Wall Street finished broadly mixed (DOW Jones Industrial Average +0.47%; S&P 500 -0.68%; NASDAQ -2.05%), with more gains catching up in the value sectors as the Dow Jones Industrial Average extended its winning streak for a ninth day. A weaker-than-expected reading in the Philadelphia Fed Manufacturing Index (-13.5 vs. -10 forecast) and a deeper contraction in the Conference Board’s leading economic indicator were largely ignored, with earnings season taking center stage and expectations well-positioned for the Fed’s latest rate hike next week. Treasury yields headed higher, with the 10-year yield jumping 10 basis points overnight.

One thing to watch might be the US dollar, which has come back to retest the former support-turned-resistance level at 100.50. For now, the general trend of lower highs and lower lows still suggests the sellers are very much in control, while chances are that the latest rally is a near-term moderation of oversold technical conditions after a massive 4% sell-off over the past two weeks. Failure to reclaim 100.50 over the coming days could leave the July 2023 low under watch at 99.00 for a retest.

Source: IG Charts

Asian Open Championship

Asian stocks appear poised for a negative open, with the Nikkei -0.69%, ASX -0.22% and KOSPI -0.75% at the time of writing. The economic calendar is relatively quiet as we end the week, with the focus this morning being Japanese inflation data for June. The core print was lower than expected (3.3% vs. 3.5% yoy), but the core side continues to show some stability with consensus at 4.2%.

That may still keep speculation of a policy adjustment from the Bank of Japan (BoJ) at bay, as 10-year Japanese bond yields hover near a two-month high at the BoJ meeting next week. While there has been some pushback by the authorities recently of the July move, there is still consensus that a policy change will only be a matter of time and could eventually happen by the end of this year.

An upbeat shift in policy settings could be negative for the Nikkei 225, as evidenced by the December 2022 2% sell-off on the Bank of Japan’s (YCC) surprise adjustment of yield curve control. But while this is still seen as a couple of meetings, the index is currently trying to defend a key double-top neckline at 32,400. The recent lower highs on the RSI indicate some exhaustion in the bullish momentum for the time being, while the index is trying to hold above the 100-day moving average (MA) for now. Failure to defend 32400 could pave the way towards the next support line at 31400.

Source: IG Charts

On the watchlist: Australian dollar / Japanese yen Back to retest the key resistance again

Hotter-than-expected jobs data out of Australia yesterday prompted a hawkish recalibration in the RBA’s interest rate outlook, with market participants anticipating higher odds of a 25 basis point central bank move next month. This led to an initial jump in AUD/JPY before a calmer risk environment dampened some of the optimism around the risk-sensitive Aussie.

However, AUD/JPY is back to retest its key resistance at 95.34 level, with a near term ascending triangle pattern forming on the four hours chart. Buyers may have to clear 95.34 to provide more conviction for a move to retest the June 2023 high, but for the time being, downside risks remain, with any downside likely to leave 93.20 in check as immediate support.

Source: IG Charts

Thursday: DJIA +0.47%; S&P 500 -0.68%, NASDAQ -2.05%, DAX +0.59%, FTSE +0.76%