Week of big tech earnings to drive clearer direction: US dollar, USD/SGD, Nikkei 225

Market Recap

It was another flat session on Wall Street to end last week, as the ongoing earnings season failed to provide the much-needed catalyst for a break to a higher high for the S&P 500 and Nasdaq. Some market indecision has been keeping the indices in a near-term range, but this could change as soon as this week with the indices’ heavy-weights (Microsoft, Alphabet, Meta Platforms and Amazon) reporting their earnings up ahead.

For the consensus view that the US Federal Reserve (Fed) will be heading towards a rate pause after the May meeting, weaker economic data will be preferred as a reflection of moderating demand but this did not seem to be the case last Friday. The S&P Global flash Purchasing Manager’s Index (PMI) data revealed higher-than-expected readings from both the US manufacturing (50.4 versus 49 forecast) and services sector (53.7 versus 51.5 forecast). While rate expectations have remained well-anchored thus far, further data pointing to economic resilience could likely brew speculations of another rate hike in June.

For the US dollar, it has struggled to find much positive follow-through last week after its bounce from its 2023 low. The index is back to retest the 101.30 support for the third occasion, with a downward break likely to open the door to retest the 100.50 level next. With the Fed blackout period pointing to the absence of hawkish Fed officials’ comments, there may be greater challenge for the US dollar to find the catalyst for a break above its current descending wedge pattern.

Asia Open

Asian stocks look set for a mixed open, with Nikkei +0.15%, ASX -0.19% and KOSPI -0.52% at the time of writing. The relatively quiet economic calendar up ahead is likely to keep the indices on subdued moves until the US earnings season provides greater cues over the coming days.

In local context, the focus may be on Singapore’s March inflation rate. The lack of any upside surprise in inflation over the past three months may help to justify the Monetary Authority of Singapore (MAS)’s decision to shift towards a tightening pause, so expectations could be for more of the same. Current forecast is for headline inflation to moderate to 5.6% from previous 6.3%, while the core aspects to taper to 5.1% from previous 5.5%.

A weaker reading could help to drive the SGD lower. With the USD/SGD being kept in a consolidation pattern over the past month, the upcoming data may determine if a break above its upper range may play out. Greater conviction for the bulls may be a move above the 1.341 level however, where its 50-day moving average (MA) stands in coincidence with a Fibonacci confluence.

On the watchlist: Nikkei 225 back to retest its 2023 high

The Nikkei 225 seems to be stuck in a ranging pattern over the past one year, bouncing within the 27,600-28,700 range as a reflection of wider indecision. A recent upmove points to a retest of its 2023 high at the 28,700 level, where a successful upward break could leave the 29,200 level on watch next. On the downside, a series of support levels remain in place to support a higher low in the event of a retracement. This includes its 50-day MA, a horizontal support at the 27,600 level and an upward trendline.

The Bank of Japan (BoJ) meeting will be on watch this week, with it being the first meeting helmed by new Governor Kazuo Ueda. Clarity on how he intends to exit from Japan’s ultra-easy policies eventually will be in focus here. Longer-term, it seems that a breakout of the long-ranging consolidation pattern needs to be warranted in order to provide greater conviction of either buyers or sellers in control.

Friday: DJIA +0.07%; S&P 500 +0.09%; Nasdaq +0.11%, DAX +0.54%, FTSE +0.15%