Asia Day Ahead: Sentiments supported by declining US yields and lower oil prices, but a firm US dollar may temper gains

Market Recap

The bounce in US Treasury yields on Tuesday came short-lived, as bond yields continued their decline overnight and supported strength in rate-sensitive tech. The US Tech 100 added another 0.90% to recent gains, notching its longest streak of gains in two years. On the other hand, the DJIA and S&P 500 eked out minor gains of 0.17% and 0.28%, while the VIX declined for the seventh straight day.

There was little on the economic calendar yesterday, except a series of Fedspeak which continued to leave the door open for additional hikes on economic resilience. The blowout US third-quarter (3Q) gross domestic product (GDP) was highlighted as part of policymakers’ consideration, but economic data since then has clearly revealed signs of softening. Nevertheless, the ‘bad news is good news’ mantra will likely remain for now, with further moderation in economic conditions to be on close watch to provide more conviction on the inflation fight. Ahead, the Federal Reserve (Fed) Chair Jerome Powell will be due to speak today, with his messaging likely to deviate little from his peers.

Having broken below a head-and-shoulder formation back in October 2023, the SPDR S&P Semiconductor ETF has rebounded around 10% month-to-date. It is currently back to retest the neckline resistance at the 183.30 level, with a bullish crossover formed on daily moving average convergence/divergence (MACD) as a sign of a reversal in momentum to the upside. Overcoming the neckline resistance may potentially support a move towards the 193.50 level next.

Asia Open

Asian stocks look set for a muted open, with Nikkei +0.21%, ASX +0.14% and KOSPI -0.31% at the time of writing. Further decline in US Treasury yields and plunging oil prices overnight may see risk sentiments in the region hold up, but a firm US dollar may temper gains. Chinese equities did not react well to China’s trade data yesterday, resuming their declines in today’s session. A significant downside surprise in exports overshadowed higher-than-expected imports number, which provide a still-mixed outlook for its GDP.

Despite so, the USD/CNH has been stuck in a range over the past months, with its daily relative strength index (RSI) reversing to its lowest level since August this year. The 7.260 level will be the crucial support to hold, where the lower consolidation edge stands alongside its Ichimoku cloud support on the daily chart. Any breakdown of the 7.260 level could potentially unlock fresh selling pressures to retest the 7.127 level over the medium term.

On the watchlist: EUR/USD facing key resistance confluence at the 1.076 level

Following a 7% sell-off since July this year, the EUR/USD has been attempting to recover some losses in recent weeks, trading within a near-term rising pattern since last month. A key resistance confluence at the 1.076 level is now in the way, where the upper edge of the Ichimoku cloud on the daily chart coincides with a key Fibonacci level. Buyers may still be in control, with the daily RSI rising above the 50 level for the first time since July 2023, while daily MACD heads above zero. Any formation of a higher low may remain on watch ahead, with any move to reclaim the 1.076 level potentially paving the way to retest the 1.086 level next.

Tuesday: DJIA +0.17%; S&P 500 +0.28%; Nasdaq +0.90%, DAX +0.11%, FTSE -0.10%