Asia Day Ahead: USD/JPY in upward channel, USD/SGD found support

Asia Open

A drift higher in Wall Street overnight places the S&P 500 in an all-time closing high, but performance across the Asia region has been more mixed amid a quiet calendar ahead, with Nikkei +0.62%, ASX -1.17% and KOSPI +0.34% at the time of writing. A stronger US dollar may keep upside in check, while broader appetite for risk-taking is likely to be muted as markets creep up to the upcoming US consumer price index (CPI) and US Federal Reserve (Fed) meeting, all while the political situation in Europe creates an additional layer of uncertainty.

Japan equities stood out however, with renewed strength from buyers pushing Nikkei to a two-week high after a period of consolidation (indecision). Continued weakening in the Japanese yen may be well-received for the nation’s exporters while a better-than-expected revision in its 1Q gross domestic product (GDP) was very much welcomed. However, any huge moves could likely come only after the Bank of Japan (BoJ) meeting this week and market participants will want to see the central bank maintain its broadly dovish stance to provide the go-ahead for further gains.

Aside, the ASX 200 were struck in the broad 7,600 - 7,900 range for now, still trying to find the conviction for a fresh break to another all-time high. The Hang Seng Index (HSI) remains weak, with market participants wanting to see more evidence of a recovery trend ahead, but incoming data has been more mixed than assuring. Eyes will be on China’s inflation data this week, where positive consumer price growth may be on watch to reflect some stabilisation in domestic demand.

What to watch: USD/JPY trading in an upward channel

Previous intervention efforts from Japan authorities to support a weak yen have failed to have any long-lasting effect, as market participants continue to favour the carry trade in USD/JPY and drive the pair to pare much of its intervention losses. An upward trend remains intact, with the formation of higher highs and higher lows displayed within a rising channel since the start of the year.

That will leave the 155.00 level on watch for any immediate defending from the bulls, where the lower channel trendline stands in confluence with its daily Ichimoku Cloud support. If the policy divergence between the Fed and the BoJ remains, the likely scenario may be a retest of the 160.00 level, which may then drive some reservations on whether the BoJ will intervene at this level once more.

What to watch: USD/SGD defending its upward trendline support

The USD/SGD has managed to defend a crucial upward trendline support following recent strength in the US dollar, which keeps the upward trend intact. As such, the pair is back to trade within its daily Ichimoku Cloud after a brief breakdown, which leaves buyers in broader control, while its daily relative strength index (RSI) edges back above the key mid-line for the first time since May 2024. Ahead, the upward trendline support will leave the 1.347 level as a crucial level for buyers to defend, while the pair may set its eyes to retest the 1.357 level as the next resistance.