Asia Day Ahead: Nikkei 225, ASX 200 retesting near-term support

Asia Open

The Asian session was off to a mixed start, with Nikkei -0.44%, ASX -0.13% and KOSPI +0.19% at the time of writing. Appetite for risk-taking remains weak, with Federal Reserve (Fed) Chair Jerome Powell validating a later timeline for rate cuts, alongside a raft of Fed speakers calling for more patience in easing. In reaction to the strength in recent economic data, the Fed Chair saw it as a ‘lack of further progress’ in inflation and that it may take ‘longer than expected to achieve that confidence’.

That said, markets have recalibrated their rate expectations previously to price for a September rate cut instead of June, and the high-for-longer Fed guidance may not come as too huge of a surprise. That may explain the limited sell-off in global markets despite the hawkish shift from the Fed. Perhaps an offer of comfort is that while the Fed pushed back on earlier cuts, they still put rate hikes off the table as well, with the Fed Chair saying that current ‘policy is well positioned to handle the risks’.

US Treasury yields were broadly higher, paving the way for the US dollar to extend its gains for the fifth straight day. The economic calendar may be quieter ahead, with focus this morning on New Zealand’s 1Q stable inflation (4% versus previous 4.7%) and yet another disappointing read from Singapore’s non-oil exports (-20.7% versus previous -0.2%).

What to watch: Nikkei 225 index retesting March 2024 low

The risk-off tone has dragged the Nikkei 225 index down more than 7% from its March peak, with the index back to retest its near two-month low in today’s session. The broader bearish bias remain for now, with its daily relative strength index (RSI) edging further below its key 50 level, while its daily moving average convergence/divergence (MACD) eyes for a bearish crossover into negative territory for the first time since the start of the year.

Ahead, the 38,000 level may be on watch, where a support confluence can be found from an upward trendline and its daily Ichimoku Cloud. Failure for the 38,000 level to hold may pave the way to retest the 36,988 level next, where a 38.2% Fibonacci retracement level stands.

What to watch: ASX 200 index retesting Ichimoku Cloud support

The ASX 200 has retraced as much as 4.6% from its April 2024 peak and is now back to retest the lower edge of its Ichimoku Cloud support in today’s session, which may see buyers jumping in to defend the line at the 7,600 level. While that may raise the odds of a near-term bounce, it is too early to conclude a sustained reversal just yet, with the 7,745 level likely to serve as a strong resistance to overcome. Any eventual failure for the 7,600 level to hold could prompt a wider retracement to the 7,400 level, where its year-to-date low stands.