De-risking ahead of FOMC meeting: Spot Gold, Hang Seng Index, AUD/NZD

Market Recap

The lead-up to the Federal Open Market Committee (FOMC) meeting has driven some de-risking to start the week, with US equity indices closing sharply lower (DJIA -0.77%; S&P 500 -1.30%; Nasdaq -1.96%) while the 7.7% surge in VIX points to increased hedging activities. Sector performance displayed a defensive lean, with consumer staples being the only sector to eke out a slight positive gain (+0.07%). On the other hand, big tech firms underperformed, with some shunning ahead of key earnings releases from the likes of Apple, Alphabet, Amazon and Meta Platforms this week. To top it off, the semiconductor industry was dragged down by a report indicating further decline in memory chip prices in first half of this year, while energy companies also tracked oil prices lower.

Some positioning for a hawkish takeaway from the Federeal Reserve (Fed) could be in place, with the US dollar rising 0.4% and stabilising above a key support at the 101.30 level for now. US Treasury yields also saw a broad-based move higher overnight. Gold prices were largely in consolidation mode, tracking the muted moves in the US dollar index. The bearish crossover on moving average convergence/divergence (MACD) and reversion in Relative Strengtth Index (RSI) from overbought region points towards moderating upward momentum for now, largely on hold for a clearer direction from the upcoming FOMC meeting. Near term support may stand at the 1,895 level, where a 61.8% Fibonacci retracement level resides.

Asia Open

Asian stocks look set for a muted open, with Nikkei +0.02%, ASX +0.28% and KOSPI +0.23% at the time of writing. Chinese equities have seen some profit-taking lately, with the Nasdaq Golden Dragon China down 4.1% overnight, following the 2.7% drop in the Hang Seng Index earlier in the day. The Hang Seng index has been trading on a rising wedge pattern since November 2022 but recent overbought technical conditions seems to call for a breather to recent rally, with RSI cutting into neutral territory (<70) from overbought region while a MACD bearish divergence suggests moderating upward momentum for now. This comes as the index is hovering at its 22,870 level, where a 50% Fibonacci retracement may serve as near term resistance to overcome. The longer-term upward trend remains intact, however, leaving any formation of higher low on watch in a retracement.

The day ahead will leave China’s Purchasing Managers Index (PMI) releases in focus, with expectations for its manufacturing PMI to deliver a smaller contraction to 49.8 from previous 47.0. With the cautious risk environment ahead of upcoming key risk events, any lower-than-expected read may be tapped on for further profit-taking.

On the watchlist: AUD/NZD due for near-term retracement on MACD bearish divergence?

Higher lows on the AUD/NZD pair have been met with lower highs on its moving average convergence/divergence (MACD) recently, with the bearish divergence pointing to moderating upward momentum and raises the odds of a near term retracement. This came after a retest of the 1.098 resistance level, where a 50% Fibonacci retracement stands in coincidence with its 100-day moving average (MA). Further downside could leave the 1.082 level on watch as near-term support, where an upward trendline stands. That said, the longer-term trend could still be upward bias, with a bullish hammer formed on the monthly chart and is set to be validated with a confirmation close this month.

Monday: DJIA -0.77%; S&P 500 -1.30%; Nasdaq -1.96%, DAX -0.16%, FTSE +0.25%