Markets to watch this week

Risk sentiments resilient to negative headlines over the past week

US equities’ strength over the past week has caught bearish traders off guard, as persistent optimism continues to dominate. Hotter-than-expected US inflation was first being shrugged off, as several key components suggest limited pass-through to the core Personal Consumption Expenditures (PCE) inflation. Friday’s surprise contraction in US retail sales had little lasting impact on sentiments as well, with temporary weather conditions perceived to have some distortions on the underlying trend. The market resilience to negative headlines may seem to leave the bears at a disadvantage for now.

Sentiments continue to bask in optimism around the temporary delay of US tariffs, along with renewed hopes for a Ukraine-Russia ceasefire, leaving the S&P 500 just below its record closing high. Buyers may aim for a breakthrough this week, with a shortened holiday week, light corporate earnings, and minimal economic data potentially fuelling a drift higher, in line with the prevailing momentum.

US Dollar Index: Weekly horizontal resistance-turned-support offers room for near-term stabilisation

An unexpected delay in US tariff risks to 2Q has triggered further unwinding in US dollar longs last week, as Trump signals a trade stance that offers room for negotiations. In the near term, there may be room for the dollar index to stabilise, as a key weekly horizontal resistance-turned support is now being put to the test around the 106.30 level. Additionally, its weekly relative strength index (RSI) is trading back near its midline, which may offer some support.

Key levels:

• R2: 109.82
• R1: 108.26
• S1: 106.26
• S2: 105.80

US Dollar Index chart:

NY Sugar No.11: Inverse HNS points to near-term reversal

A display of an inverse head-and-shoulder (HNS) formation on the four-hour chart suggests a trend reversal to the upside, as its daily RSI trades above its key 50 level for the first time since November 2024, indicating that buyers are regaining broader control. This follows after the 17.97 level of support was validated, with buyers defending the line on two occasions over the past month. Further upside could leave the 20.51 level in focus, based on the HNS projection.

Key levels:

• R2: 20.51
• R1: 19.30
• S1: 18.61
• S2: 17.97

NY Sugar No. 11 chart:

AUD/JPY: Resistance confluence on watch ahead

The JPY has found room to strengthen into the new week, supported by stronger gross domestic product (GDP) data that reinforces expectations for further rate hike. Nationwide inflation data this week could further support the case for tightening, following Tokyo’s inflation trends. Meanwhile, the Reserve Bank of Australia (RBA) is expected to cut rates by 25 basis points (bp) this week, with the prospect of narrowing bond yield differentials likely to weigh on the AUD/JPY. The pair is currently facing a key resistance confluence, where sellers are likely to target a new lower high. Its daily RSI is also back at its midline – a level it has struggled to cross above since November last year.

Key levels:

• R2: 98.55
• R1: 96.72
• S1: 94.56
• S2: 93.61

AUD/JPY chart:

Hang Seng Tech Index: Near-term indecision around Oct 2024 high

Following a close to 30% rally in the index over the past month, the index is now facing some indecision around its October 2024 high. Its four-hour moving average convergence/divergence (MACD) displays a near-term bearish divergence as a sign of abating upward momentum, but past instances suggest that technical conditions may remain overbought for a period of time in light of previous extreme bearish sentiments. Near-term bearish conviction may have to come from a move in its daily RSI back into neutral territory, along with a price confirmation close below its October 2024 high at the 5,434 level.

Key levels:

• R2: 5,652
• R1: 5,434
• S1: 5,160
• S2: 4,945

Hang Seng Tech Index chart:

US Russell 2000: Lower channel trendline offers key support

The Russell 2000 has been trading within a broad rising channel, with multiple retests of the lower trendline over the past month validating it as a key support level, alongside the formation of higher lows offering bullish bias. The next focus will be the upper bound of the daily Ichimoku Cloud resistance at the 2,325 level, with repeated tests of this resistance raising the odds of an upward breakout. Sensitivity to the Federal Reserve (Fed)’s rate cuts remains a key catalyst, as expectations now lean toward two rate cuts through 2025, up from the initially one cut expected.

Key levels:

• R2: 2,450
• R1: 2,325
• S1: 2,220
• S2: 2,140

US Russell 2000 chart: