Rangebound moves seen in Wall Street overnight: Russell 2000, USD/JPY, NZD/USD

Market Recap

Major US indices are largely rangebound throughout the trading session overnight but nevertheless, an eventual close in positive territory suggests equity bulls attempting to hold on after the sell-off on Wednesday. Hawkish comments from Federal Reserve (Fed) speakers have lifted the US dollar near its one-month high but that has not materialised into downward pressure for equities. All-time hawkish Fed member, James Bullard, said he backed another 75 basis-point (bp) rate hike at the September Federal Open Market Committee (FOMC) meeting, while non-voting Fed member Mary Daly said “a little" above 3% by the end of the year is needed and pushed back against aggressive rate cuts next year. Overall, the debate remains between a 75 or 50 bp increase in the September meeting.

Conflicting signals from the economic data front seems to arise with the expansion in the Philadelphia Fed Manufacturing Index at 6.2 versus a consensus of a 5.0 contraction. This seems to come in contrast with the surprise contraction in New York Empire State manufacturing index earlier this week. US initial jobless claims remains resilient with the absence of an uptick this week while existing home sales fell more than expected. The slew of economic data provided mixed views on economic conditions, with some market indecision presented in the ranging market moves. That may last into the weekend amid the quiet economic calendar today, with all eyes on the Jackson Hole Symposium next week.

The overnight action revolved around meme stocks, with Bed Bath & Beyond plunging close to 20% overnight while pointing to another 44% downside post-market. The plunge was seen in GameStop and AMC as well, although it came with a relatively lesser scale of decline. For the Russell 2000, an upward trendline on the four-hour chart is attempting to keep its upward bias in place. With that, any break below the trendline support will be on watch, which could signal a near-term reversal in sentiments.

Asia Open

Asian stocks look set for a mixed open, with Nikkei +0.35%, ASX -0.04% and KOSPI -0.28% at the time of writing. Coming from the ranging moves in Wall Street, some market indecision could play out in the Asia session as well, as we head into the weekend break along with option expiry this week. This morning saw the release of Japan’s July inflation rate, with headline inflation inching upwards to 2.6% year-on-year (YoY) growth from previous 2.4%. On the other hand, core inflation matched consensus of 2.4% growth from the previous year. The readings may not call for any significant shift in the Bank of Japan (BoJ)’s accommodative policies in the near term but as inflation is set to increase over the coming months, the BoJ’s stance will be put under greater scrutiny. That will leave any hawkish bets for the JPY on watch.

For now, the USD/JPY (大口） remains driven by US dollar strength, coming in at its three-week high. The formation of a recent higher low and higher high points to a near-term upward bias but the 137.40 will come as a key resistance to overcome. To mark any significant reversal in sentiments for the US dollar, a break below the 104.40 level will be key, considering that this will mark a confirmation of a bearish shooting star candle presented on the monthly chart.

On the watchlist: Breakdown of ascending channel trendline support for NZD/USD

Following up on the NZD/USD, the pair has failed to see a sustaining uplift after the Reserve Bank of New Zealand (RBNZ) meeting this week. The 50 bp hike from the central bank is largely expected and despite the RBNZ signalling a more-aggressive terminal cash rate of 4.0%, some doubts from economic slowdown concerns seem to be putting a cap on NZD strength. The pair’s focus largely revolves around the US dollar, with yesterday’s US dollar strength driving a break of the currency pair below an ascending channel pattern. A bearish crossover on moving average convergence divergence (MACD) provided a near-term downward bias, with the next retest of support at the 0.622 level. Any break below the level could draw further downside to the 0.610 level next.

Thursday: DJIA +0.06%; S&P 500 +0.23%; Nasdaq +0.21%, DAX +0.52%, FTSE +0.35%