Asia Day Ahead: Nikkei, HSI attempting to hold key support

Asia Open

The Asian session is set for a broadly positive open, with Nikkei +0.73%, ASX -0.08% and Kospi +0.93% at the time of writing. This comes despite a more subdued session in Wall Street, as strength once again revolved around the tech sector. The key headline may be the 3.5% gain in Nvidia, which pulled ahead of its Magnificent Seven peers to become the world’s most valuable publicly-traded company.

Overnight, the economic data front saw its second straight month of downside surprise in US retail sales, which support views for a quicker Federal Reserve (Fed) policy easing process, given the significance of US consumer spending within the broader US economy. The US dollar pared earlier gains as more dovish views are bolstered while US Treasury yields weakened, offering room for some relief in risk sentiments into today’s session.

Nikkei attempts to recover from trendline support

The Bank of Japan (BoJ) meeting minutes revealed policymakers’ debate around the weaker yen potentially bolstering inflation, but trade data today also highlighted that it is having a positive impact on exports, as Japanese May exports rose higher-than-expected at 13.5%. Much will revolve around whether underlying inflation will see a significant resurgence over the coming months amid a stronger wage-price cycle to trigger a quicker policy normalisation.

Moves in the Nikkei have reflected much indecision in place, with the index trading in a broad consolidation phase thus far. That said, a retest of a near-term upward trendline support this week was met with some dip-buying, as the index attempts to pare some losses. The 39,300 level may be a key resistance to overcome, having weighed on the index on previous two occasions. Any move above this level may mark a near-term higher high and support an upward bias.

Hang Seng Index (HSI) retesting key support as well

The HSI has retraced close to 10% from its May 2024 peak, as a mixed set of economic numbers seems to raise more questions on any sustained recovery in the world’s second largest economy. Just this week, we have a stronger-than-expected May retail sales figure, but industrial production loses some steam and the real estate sector shows that its woes are far from over. If the trend in economic data disappoints further, it may send a warning sign for its growth and raise calls for more to be done to better achieve its growth target of around 5%.

At least for now, the HSI is attempting to defend a key support confluence at the 17,836 level, where its daily Ichimoku Cloud support stands with alongside a key Fibonacci retracement level. Greater conviction however may come from a move in its daily relative strength index (RSI) back above its mid-line. Ahead, the 18,600 level may serve as near-term resistance, which has capped the index on two occasions since May this year.