Some wait-and-see into Powell’s testimony: US dollar, Straits Times Index, AUD/USD

Market Recap

Major US indices pared their initial gains towards the latter half of the session to largely end the day flat, as Treasury yields saw some holding up ahead of Federal Reserve (Fed) Chair Jerome Powell’s testimony today. Rate-sensitive growth sectors had largely outperformed, but the sharp paring of gains suggests that the bulls were heavily challenged, with the VIX shifting higher as a sign of increased hedging activities. The largely quiet economic calendar overnight pointed to more of a wait-and-see stance for now, while the strong defending of their respective 200-day moving averages (MAs) from major US indices continues to support some hopes for a further upmove.

Three more 25 basis-point hikes over the next three meetings have been well-anchored for the Fed’s rate outlook thus far, but investors will be seeking some validation from Fed Chair Jerome Powell to gauge whether this pricing will be sufficient. The reaffirmation to tame inflation from the Fed Chair is largely expected but having brought up the ‘disinflation’ word just last month, market participants will be on watch to see if recent upside surprises in pricing data will drive any shift in his thoughts. Leaning to a data-dependent stance and wanting to see more data to better gauge the inflation trend may be a possible scenario, which could be looked upon as a ‘less hawkish’ view. On the other hand, a step-up in hawkish language from previous tone may draw more mixed reaction.

The US dollar continues to moderate from its key 105.00 level of resistance, but with the near-term trend carrying some upward bias after a breakout of previous descending channel, any formation of a higher low will still be on watch. While the 105.00 will serve as resistance to overcome, near-term support may be at the 103.12 level, where a previous resistance-turned-support stands in line with its 50-day MA.

Asia Open

Asian stocks look set for a mixed open, with Nikkei +0.41%, ASX -0.11% and KOSPI +0.05% at the time of writing. The largely flat moves followed the mixed closing in Wall Street, with wait-and-see sentiments generally at play. The key risk event ahead will be the Reserve Bank of Australia (RBA) meeting. A 25 basis-point hike is a done deal, but the central bank’s language will determine if market pricing for two more 25 basis-point hikes after today’s meeting will be sufficient. Any shift in wording to be more data-dependent and non-committal may be looked upon as a step-down from previous hawkish tone, where the RBA stated that ‘further increases in interest rates will be needed over the months ahead’.

Closer to home, the Straits Times Index is back to retest a key support at the 3,230 level, where the base of a previous consolidation zone stands. The formation of a bullish pin bar at this level suggests some dip-buying, in which the level also stands alongside the 100-day and 200-day MA as a key support confluence. Any break below the 3,210 level could suggest the bulls giving way for failing to defend its 200-day MA. On the other hand, defending the 3,230 level could bring a retest of the 3,320 level, where the top range of the previous consolidation zone stands.

On the watchlist: AUD/USD consolidating just below 200-day MA ahead of RBA meeting

Ahead of the RBA meeting today, the AUD/USD continues to consolidate just below its 200-day MA after failing to sustain above it back in late-February this year. The previous upward trend has been brought into question, ever since a previous breakdown of an upward trendline support. For the bulls, reclaiming back above the 0.678 level may be key, where the 200-day MA stands in coincidence with a Fibonacci level. That may provide greater conviction of a move towards the 0.691 level next. On the other hand, the bears may want to see a further breakdown of the 0.666 level, which has been supporting the pair on multiple occasions at the end of last year.

Monday: DJIA +0.12%; S&P 500 +0.07%; Nasdaq -0.11%, DAX +0.48%, FTSE -0.22%