Lower-volume session drives some wait-and-see: Germany DAX, USD/JPY, EUR/JPY

Market Recap

The Thanksgiving holiday in the US yesterday brought about a lack of indications for risk sentiments but taking the cue from European indices overnight pointed to a continued positive follow-through from the recent Federal Reserve (Fed) minutes. The UK FTSE 100 came in as the laggard, but nevertheless, the relatively lower-volume session overall suggests that greater indications for market direction may only come next week as the US heads for half-day trading today. Yesterday’s economic calendar placed focus on the release of the European Central Bank (ECB) minutes, which revealed continued rate hikes ahead on the back of strong inflation concerns. That said, louder recession concerns from some policymakers also cast doubts on the timeline at which aggressive rate hikes can last. A 50 basis-point (bp) hike is the current consensus for the December meeting.

The DAX index is heading closer to its previous peaks formed during March and June this year. Technical indicators point to overbought conditions on the relative strength index (RSI), with a bearish crossover is exhibited on the moving average convergence/divergence (MACD). While that could raise the chances of a near-term retracement, the index having traded firmly above a longer-term downward trendline since late-October will leave the formation of a higher low on watch. Near-term, a zone of resistance may be presented at around the 14,700-14,800 region. Any retracement could leave the 14,000 level in focus as a level of support.

Asia Open

Asian stocks look set for a mixed open, with Nikkei -0.22%, ASX +0.21% and KOSPI -0.11% at the time of writing. A largely muted session could play out today, as market participants head into the weekend with a relatively lower-volume session from our US counterparts. The economic calendar today saw the release of Tokyo’s inflation readings, which revealed slight outperformance in the core aspects (3.6% versus 3.5% forecast). With the Bank of Japan (BoJ) being one of the few outliers which has not embarked on a rate-hiking process, the point of pivot will be a key question into next year. Ongoing push in inflation readings further away from its 2% target will continue to be pitted against the central bank’s ‘transitory’ view. Current expectations suggests that the March or April meeting next year is the expected timeline.

For the USD/JPY (大口）, it is currently retesting its early-November bottom, with sellers rejecting the formation of a bullish crossover on MACD as recent upside has been met with resistance at its 100-day moving average (MA). A break below its near-term bottom could leave the 135.20 level on watch next as the formation of a new lower low will continue to reinforce the near-term downward bias.

On the watchlist: EUR/JPY retesting trendline support after ECB minutes

The release of the ECB minutes saw EUR/JPY heading lower to retest a key trendline support, as market participants digest the louder recession concerns from some policymakers, which raised questions on whether the pace of rate hikes will move towards a lower gear ahead. For now, clues of a dovish pivot were not presented through the minutes yet. On the technical front, the daily chart for the EUR/JPY revealed a near-term falling channel pattern, while recent downside rejected the formation of a bullish crossover on MACD. Attempts to recover have been relatively short-lived since late-October, with the lower highs providing more of a downward bias for now. Key level to watch will be at the 142.70 level, where a confluence of Fibonacci retracement stands in place.

Thursday: US markets closed for holiday. DAX +0.78%, FTSE +0.02%