Asia Day Ahead: Sentiments on hold for US CPI, USD/JPY inching towards Oct 22 peak

Market Recap

Major US indices remained stuck in their usual cautious state in the lead-up to the upcoming US consumer price index (CPI) release, which may dictate how bets may shift for the Federal Reserve’s (Fed) next move in December, along with expectations for rate cuts being priced in the second half of 2024. The current consensus is for the headline inflation rate to decline to 3.3% from a year ago, while core inflation is expected to hold steady at 4.1% year-on-year.

Thus far, Fed policymakers have refrained from acknowledging that US interest rates have peaked and any persistence in inflation will likely provide more validation for policymakers to stick to their hawkish script amid the series of Fedspeak this week. US Treasury yields largely indicated some indecision to start the week, firming lately but gains still pale in comparison to previous post-Fed sell-off.

The US dollar is attempting to tap on the Fed policymakers’ pushback against previous dovish rhetoric to recoup some losses lately, seemingly putting in place a near-term falling channel. Some reservations still remain however, with its daily relative strength index (RSI) back to retest its 50 level after a recent breakdown. The 104.50 level may be crucial for the bulls to defend ahead, where the lower edge of its daily Ichimoku cloud coincides with the lower channel trendline support. Failing which may point to a trend reversal in place. On the upside, the upper channel trendline resistance at the 106.20 level will be key to overcome.

Asia Open

Asian stocks look set for a positive open, with Nikkei +0.29%, ASX +0.53% and KOSPI +1.17% at the time of writing. Economic data this morning saw moderating consumer confidence out of Australia, alongside falling import and export prices out of South Korea. Earlier, China’s October new bank loans fell less than expected, which may reflect some positive impact from supportive policy measures. That said, greater cue for market sentiments may still heavily revolve around the upcoming US CPI data, which could keep some wait-and-see in place for now.

Perhaps one to watch will be the USD/JPY, which is seeking to retest its October 2022 high at the 152.00 level – the upper range of the Bank of Japan’s (BoJ) intervention last year. Thus far, the central bank has stuck to its snail-paced policy normalisation, with validation from BoJ Governor Kazuo Ueda’s recent comments that there are "still some distance to cover" before the BoJ can scrap a pledge to maintain its yield curve control (YCC) and negative interest rate policy.

For now, an upward channel pattern remains in place for the USD/JPY, keeping the overall trend upward-bias. The 150.00 level will serve as near-term support to hold in the event of any sell-off, with greater conviction for a trend reversal likely having to come from a breakdown of its daily Ichimoku cloud support, which has been supporting the pair since March this year.

On the watchlist: Natural gas prices seeking to defend double-top neckline

Shifting expectations on weather patterns have translated to some volatility in US natural gas prices lately, with prices trading on a near-term double-top formation since October this year. Recent 6% upmove as a result of colder weather forecasts has marked a bounce off the double-top neckline at the $3.166/MMBtu level, alongside an interaction with the upper edge of its Ichimoku cloud support on the daily chart.

That may still keep the broader upward trend intact for now, with key resistance to be presented at its October 2023 highs at the $3.562/MMBtu level. On the other hand, the $3.166/MMBtu level will serve as crucial support to hold, along with its Ichimoku cloud support, failing which could mark a trend reversal in place.

Monday: DJIA +0.16%; S&P 500 -0.08%; Nasdaq -0.22%, DAX +0.73%, FTSE +0.89%