Asia Day Ahead: US dollar struggles while gold touches record high, HSI on watch

Market Recap

Market watchers hoping to get some clues on the timeline for Federal Reserve (Fed)’s rate cuts were disappointed yesterday, as Fed Chair Jerome Powell’s testimony before Congress did not see much hawkish revisions and offered little surprise. The Fed Chair largely stuck to his script of being data-dependent, although he did acknowledge “notable” progress in inflation and to dial back on policy restraint “at some point this year”. Being somewhat an echo of previous comments from his Fed colleagues, Fed Funds futures saw minimal recalibration, with broad consensus still rooting for the start of the rate-cut process in June this year.

The US non-farm payroll this Friday will be the next key risk event, with the robust labour market having been a key reason for policymakers to hold back on earlier rate cuts. Expectations are for February job gains to moderate to 200,000 from previous 353,000, while unemployment rate may stay unchanged at 3.7%. Lower-than-expected read from labour indicators yesterday (US Job Openings and Labor Turnover Survey (JOLTS) and Automatic Data Processing (ADP) employment survey) did support easing labour conditions, but one may note that the US non-farm data has the tendency to surprise on the upside over the past months.

It has been a struggle for the US dollar (-0.41%) overnight, which has tracked Treasury yields lower. The daily relative strength index (RSI) have reverted back below the key 50 level for the first time since January this year, indicating a potential switch to near-term bearish bias. Further downside may leave the 102.30 level on watch, where the lower edge of its daily Ichimoku cloud support stands. Failure for buyers to defend that level may subsequently pave the way towards the 100.50 level next.

Asia Open

Asian stocks look set for a slight positive open, with Nikkei +0.35%, ASX +0.29% and KOSPI +0.31% at the time of writing. The positive handover from Wall Street, alongside lower Treasury yields and a weaker US dollar, may offer some relief as Fed Chair’s testimony failed to drive much hawkish deviation from his usual script.

Chinese tech shares may be on watch today, given the better-than-expected fourth-quarter revenue and a $3 billion share repurchase from JD.com, although one may note that previous attempts to bounce have been short-lived, given the still-weak fundamentals in China’s economy. For the Hang Seng Tech Index, there is a slight bullish bias in the near term as its daily RSI attempts to defend the mid-point, but resistance may be presented at the 3,550 level where the upper edge of its Ichimoku cloud resistance stands.

The day ahead will leave China’s trade numbers on watch, with lukewarm conditions likely to be the story. Expectations are for January-February exports to soften to 1.9% from previous 2.3%, while imports may improve to 1.5% from previous 0.2%. For now, the Hang Seng Index (HSI) has been well-supported by near-term higher highs and higher lows, as its daily RSI attempts to defend the key 50 level to keep buyers in control. While it is surely premature to conclude at current point in time, one may watch for any retest of the 16,900 level to mark a potential inverse head-and-shoulder formation, with any upward break of the neckline potentially supporting a move to the 18,075 level next.

On the watchlist: Gold prices surge to record high

Gold prices have been on a tear lately, surging 5.4% since last Friday as a positive reaction to the weaker US dollar, impending rate cuts from the Fed and lingering geopolitical tensions. The surge on rising volume may bode well for the upward trend continuity, as its daily moving average convergence/divergence (MACD) headed back into positive territory after a month-long consolidation. Any near-term retracement may leave the US$2,110 level on watch for potential support from buyers, followed by the US$2,086 level based on Fibonacci retracement levels.

Wednesday: DJIA +0.20%; S&P 500 +0.51%; Nasdaq +0.58%, DAX +0.06%, FTSE +0.43%