Asia Day Ahead: HSI flirting with bull market territory, while USD/JPY remains on watch

Asia Open

The Asian session was set for a positive open, with Nikkei +1.43%, ASX +0.17% and KOSPI +0.82% at the time of writing. This follows after Wall Street edged slightly higher overnight, albeit with some reservations in place ahead of several key tech earnings and Federal Reserve (Fed) meeting. The USD/JPY was the talk of the town, with a suspected intervention on a Japan holiday to amplify any yen-buying impact (further analysis on the USD/JPY below).

The Hang Seng Index (HSI) remains a touch away from bull market territory, which is marked by a 20% rise above its most recent low. The index briefly crossed into the bull territory yesterday, but sellers were quick to dampen the optimism. Nevertheless, a break above a key downward trendline resistance last week still suggest buyers in near-term control, while one may argue that a head-and-shoulder formation breakout is in play as well.

Any move above the 18,000 level may be on watch, which could trigger headlines of a technical bull market for the index. A move above the 18,000 level may pave the way to retest the 18,800 level next. On the downside, key support will be at the 17,200 level, where the head-and-shoulder neckline will serve as a trendline to defend from buyers.

Economic data to digest: China’s PMI

China offered a mixed set of purchasing managers’ index (PMI) data this morning, with official manufacturing data remaining in expansion territory at 50.4 (50.3 consensus, 50.8 prior), which set an optimistic tone around external demand. The Caixin manufacturing PMI registered its highest level in 14 months as well, coming in at 51.4 versus 51.1 prior, suggesting some stabilisation within the sector. However, the official non-manufacturing data underperformed (51.2 versus 53.0 prior), which trailed the consensus by a fair degree.

Overall, China’s economy remains in a state of weak growth but given the beaten-down sentiments in the market, market participants will actively seek for signs that the worst is over. The PMI data offers a lukewarm take on its recovery, with improvement in manufacturing but pockets of weakness still warrant some attention over coming months.

What to watch: Intervention chatters on USD/JPY but can it hold?

The USD/JPY was all the attention yesterday, with a huge 3% downside reaction to its 155.00 level following a touch of its key 160.00 level. The extent of the move is reminiscent of previous interventions, with market participants now awaiting the official confirmation from authorities.

However, the possible intervention does not remove the fact that USD/JPY remains a favourable carry-trade, given the US-Japan bond rate differentials on policy divergence. That may instead offer dip buyers the opportunity to step in. Back in 2022, it was only after the Bank of Japan (BoJ) signalled a future exit from easy monetary policies, which prompted a wider decline in the USD/JPY.

The USD/JPY seems to trade within an ascending channel pattern for now. A dip below yesterday’s low of 154.50 may suggest room for the near-term downward pressure to extend towards the 152.00 level, which marked a previous resistance-turned-support horizontal level. That said, the upward trend in the pair remains intact, which could see the pair head for the 160.00 level once more and put the BoJ’s resolve to the test.

What to watch: USD/SGD remains within a bullish wedge

Following a 3% surge over the past two months, the USD/SGD is locked in a near-term consolidation as market participants await more cues on Fed’s policy outlook this week. Overall, the pair is still trading within a bullish wedge formation for now, with its relative strength index (RSI) hovering above the mid-line.

One may watch for any upward break of the wedge above the 1.363 level to signal a continuation of the upward trend. On the downside, the 1.357 level will be immediate support to hold, failing which may pave the way towards the 1.350 level next.