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 is up 0.30%, the ASX is up 0.70%, while the KOSPI is up 0.32%.

There were not much on the economic calendar to sway Federal Reserve (Fed)’s rate expectations into the new week, with the slight retreat in the US dollar potentially a reflection of some profit-taking, given that much around Trump presidency and a less-dovish Fed outlook has been factored for now. With the slight breather in the Treasuries sell-off, the 4.50% level for the US 10-year yields may be established as the key line to watch, with any move higher likely to renew pressures on rate-sensitive tech stocks.

Ahead, NVIDIA’s earnings will no doubt be the single risk event this week, given its heavy weightage in the S&P 500 and Nasdaq, which can single-handedly determine a make-or-break for global markets. Expectations heading into its results continue to run high, with previous string of significant outperformance making investors wary of going against the trend and are leaning for longs. The lead-up to its results could likely see investors holding back on aggressive risk-taking, which could suggest that more lukewarm sessions may be expected over the coming days.

The economic calendar remains light, with some focus to be on the Reserve Bank of Australia (RBA) meeting minutes. Expectations are priced for the central bank to cut rates only in May next year and the 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 still hanging around lower wedge trendline support

For now, the Nikkei 225 index 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. Price target could be the upper wedge trendline resistance at the 40,931 level. Of course, should there be any breakdown below last week’s high, that would be a call for caution.