Asia Day Ahead: room for a breather as US dollar cools further

Asia Open

Further cooling in the US dollar rally for the second straight day and some resistance for Treasury yields to go higher overnight should see Asian indices taking their chance for some recovery. At the time of writing, the Nikkei 225 is up 0.30%, the ASX 200 has gained 0.70%, and the KOSPI is up 0.32%.

US dollar and Treasury yields

The economic calendar offered little to influence the Federal Reserve (Fed)’s interest rate expectations at the start of the week. The slight retreat in the US dollar likely reflects profit-taking, with much of the less-dovish Fed outlook and policies under Trump’s presidency already priced in.

A pause in the Treasury sell-off has seen the 4.50% level for the US 10-year yield emerge as a key threshold. Any move above this level could renew pressure on rate-sensitive tech stocks.

Nvidia earnings take centre stage

Nvidia’s earnings will no doubt be the single risk event this week, given its heavy weightage in the S&P 500 and Nasdaq 100. s. With its results capable of influencing global markets, expectations remain high.

Nvidia’s strong track record has made investors cautious about taking contrarian positions, with many leaning toward long positions. However, the lead-up to its earnings report may temper aggressive risk-taking, resulting in more subdued market sessions in the coming days.

RBA meeting minutes

Expectations are priced for the central bank to cut rates only in May next year and the Reserve Bank of Australia (RBA) meeting minutes should not trigger much of a deviation.

Policymakers are expected to retain its balanced view, with above-target inflation as the basis for some reservations over a quicker easing process.

Nikkei 225 tests wedge trendline support

The Nikkei 225 continues to hang around a lower wedge trendline support. Moves over the past weeks have been choppy, with the index failing to make a higher high in November this year.

The lower wedge trendline support may seem to offer an opportunity for long, with the index’s seasonality generally pointing to stronger performance from the second half of November into early-December.

A potential price target could be the upper wedge trendline resistance at the 40,931 level. However, a breakdown below last week’s low would signal caution for investors.