Initial rally fizzled into the close: S&P 500, USD/JPY, Silver

Market Recap

An initial rally for US equity indices failed to sustain overnight, as gains were pared throughout the trading session to end the day in the red (DJIA -0.73%; S&P 500 -0.88%; Nasdaq -1.02%). Higher-than-expected US jobless claim figures were promising by reflecting a moderating US labour market and pushing back against recent upside surprise in the January job report. That said, a lacklustre auction of the US 30-year bonds eventually saw US Treasury yields surging mid-day, which kept the pressure on risk sentiments. The communication services sector (-2.8%) continued to underperform for the second straight day, as sell-off in Alphabet (-4.5%) saw no easing from the inaccuracy of its new chatbot.

The US dollar index recovered from its day low, with the formation of a bullish pin bar pointing to some dip-buying. That kept the pressure on gold and silver prices, with sellers seemingly taking control after a period of consolidation (indecision). The current bias seems to be for further strength in the US dollar, with the index resting just above a previous descending channel pattern. On the other hand, the VIX was 5.5% higher to reclaim back above its key 20 level, raising the odds of further retracement in equity indices. For the S&P 500, the index is accompanied with the formation of a bearish crossover on moving average convergence/divergence (MACD), indicating a potential near-term shift in momentum. Further downside may leave the 4,000 level on watch for the formation of a higher low, where a 38.2% Fibonacci retracement level resides. Near-term resistance to overcome will be at the 4,200 level.

Asia Open

Asian stocks look set for a mixed open, with Nikkei +0.67%, ASX -0.54% and KOSPI -1.00% at the time of writing. The Nikkei 225 index is finding some validation this morning from the lower-than-expected read for its January producer prices (flat month-on-month versus 0.3% forecast, 9.5% year-on-year versus 9.6% forecast). With brewing speculations for an impending policy shift this year, the lower-than-expected figures may relieve some pressure for the central bank to adopt more aggressive moves, which may account for the uplift in the equity index this morning. The USD/JPY (大口） has previously broken out of its descending channel pattern last week and is currently retesting a key resistance-turned-support level at 130.80. If the support holds, a retest of its 134.50 level could be in sight.

Overnight, the Nasdaq Golden Dragon China index (+1.1%) managed to close in the green. That said, sentiments may have to digest the potential for US to take action against entities connected to China’s military that supported the flight of the Chinese spy balloon. Further export controls may be on the table, which could keep some caution on for the tech sector.

Ahead, China’s inflation figures will be in focus. Reopening efforts towards the end of last year may help to revive its January consumer prices, with an expected further uptick to 2.1% from previous 1.8%. The reading could validate the ongoing economic recovery, while inflation still below the People’s Bank of China’s (PBOC) inflation target of 3% could leave room for supportive policy measures to be in place for longer.

On the watchlist: Silver prices breached key US$22.00 level after period of indecision

After consolidating above its key US$22.00 support level over the past week, silver prices eventually caved in to recent US dollar resilience overnight. Prices broke to a new two-month low, with its MACD crossing below the zero mark, indicating a potential shift in momentum to the downside. That may leave the US20.90 level on watch ahead, where a 38.2% Fibonacci retracement level stands alongside its 200-day moving average (MA) as a strong confluence of support. Resistance remains at the recent support-turned-resistance US$22.00 level.

Thursday: DJIA -0.73%; S&P 500 -0.88%; Nasdaq -1.02%, DAX +0.72%, FTSE +0.33%