Asia Day Ahead: USD/JPY at one-month low, Brent crude awaits catalyst for resistance break

Market Recap

Wall Street continued to extend its rallies overnight, with the S&P 500 posting yet another new record high as market participants seem to take Federal Reserve (Fed) Chair Jerome Powell’s testimony in stride. His comments continued to fall short of the hawkishness that was initially expected, with the Fed Chair saying that the Fed is “not far” from gaining enough confidence in the inflation fight to enable the start of an easing cycle. That seems to validate current market optimism for impending rate cuts, potentially with the first in June this year.

The US dollar extended its decline as a result, taking its cue from weaker US Treasury yields to fall close to 1% over the past two days. Rate-sensitive growth sectors outperformed with semiconductors having yet another terrific day, as the PHLX Semiconductor Sector Index surged 3.4% to another record high at 5,165.83. The Magnificent Seven stocks were broadly higher, with the exception of Apple (-0.07%) which continues to lag behind its counterparts.

A look at Apple’s chart will present a potential double-top formation, with negative divergences on its weekly Moving Average Convergence/Divergence (MACD) and Relative Strength Index (RSI) pointing to bearish momentum in place. Falling behind the big tech race in artificial intelligence (AI) and slumping iPhone sales in China (its largest overseas market) has kept investors shunning for now. Ahead, the double-top neckline at the US$165.11 level may be crucial for buyers to defend, failing which may leave the projected price target at US$130.40 level in sight next.

Asia Open

Asian stocks look set for a positive open, with Nikkei +0.13%, ASX +0.71% and KOSPI +1.26% at the time of writing. Another day of plunging US dollar seems to bode well for risk sentiments across the region, with the ASX 200 scaling yet another new record high. Despite upside surprises in China’s trade data yesterday, the downbeat performance in Chinese equities seem to reflect some reservations among market watchers on whether the recovery momentum can hold.

Renewed strength in the JPY has been the talk of the town, as stronger wage growth seems to support an earlier timeline for policy tightening, given that it is one of the closely-watched condition among policymakers for a policy pivot. We did have weaker-than-expected Japan’s household spending data released this morning (-6.3% year-on-year versus -4.3% consensus), with weak domestic consumption potentially driving some policymakers to call for more patience. Nevertheless, that seems to barely move the dial around market rate expectations for an eventual end to negative interest rate policy (NIRP) by June this year.

The USD/JPY has dropped to a one-month low this week, following a brief consolidation around the key psychological 150.00 level. A switch to near-term bearish momentum seems to be in place, with the daily RSI heading below the key 50 level for the first time since the start of the year, while its daily MACD eyes for a potential cross into negative territory. The upward trend in the USD/JPY since January 2023 has been met with Fibonacci retracements at 50% and 76.4%, therefore, potential support to watch may be found at the 145.54 level, which also marked the lower edge of its daily Ichimoku cloud support.

On the watchlist: Brent crude awaits catalyst for break of resistance

Brent crude prices have been locked in consolidation over the past one month, hanging just below a key horizontal resistance at the US$84.00 level. One may argue that rising US oil inventories for the six consecutive weeks and lingering concerns on China’s demand outlook have failed to dampen prices as much, with market watchers seeming awaiting a catalyst to drive a new higher high as a continuation of its prevailing upward trend. Any move above the US$84.00 level of resistance may reflect further control from buyers, potentially leaving the US$88.00 level on watch next. On the downside, an upward trendline will serve as key support for prices to hold.

Thursday: DJIA +0.34%; S&P 500 +1.03%; Nasdaq +1.51%, DAX +0.14%, FTSE +0.17%