Asia Day Ahead: Nikkei eyeing resistance, HSI broke above near-term channel

Asia Open

The Asian session looks set for a positive start in today’s session, with Nikkei +1.12%, ASX +0.32% and KOSPI +0.98% at the time of writing. Appetite for risk-taking remains strong, as the bullish momentum in Wall Street extends its winning streak to the eighth straight day, with buyers likely eyeing for a retest of their previous all-time high ahead.

The broad-based gains across all 11 S&P 500 sectors may be significant, which offers fuel for the rally’s sustainability. Outperformance was once again seen in the growth sectors, with greater traction flowing into artificial intelligence (AI) names, as the recession dust settles and technical conditions hit a reset from previous overbought levels. The notable data on watch overnight was the US Leading Economic Index (LEI), which contracted more than expected (-0.6% versus -0.3% forecast) but the six-month annual growth rate no longer signals recession ahead, which should add further legs to the soft-landing story.

There has been some big moves in the forex (FX) space, with the US dollar dipping 0.5% to its lowest level since January this year despite more subdued moves in US Treasury yields. Expectations for imminent Federal Reserve (Fed)’s rate easing continue to play a part, with dovish validation for the Fed’s rate outlook to be sought from Fed Chair Jerome Powell at Jackson Hole this week. The Nikkei managed to trade above its 200-day moving average (MA), which should see buyers pushing for further gains ahead if the trendline holds. The Hang Seng Index (HSI) may be on the radar as well, with eyes on whether it can push above yesterday’s high following a gap-up.

Look-ahead: China’s loan prime rate, Reserve Bank of Australia (RBA) meeting minutes

The economic calendar ahead will leave China’s loan prime rate in focus, with expectations for one-year and five-year rates to be kept unchanged. Following last month’s surprise cuts, another unexpected move will likely rock the boat further and signal greater urgency in tackling economic risks, which may not bode well for Chinese equities. More wait-and-see from the People's Bank of China (PBOC) is the consensus currently, which should likely be a non-event.

The RBA meeting minutes will also be on the radar, which should see policymakers guiding for the next meeting to be a ‘live’ one. With the RBA expected to lag other major central banks in its policy easing cycle, the Governor’s previous hawkish tone may likely be reflected in the minutes, which may validate the current no-change in rates priced by markets over the next two meetings.

Nikkei still eyeing for a break of resistance

The Nikkei has managed to trade above its 200-day MA, but a Fibonacci 61.8% retracement level at the 37,900 level will be an immediate resistance to overcome. This also marked a previous horizontal support-turned-resistance level, as its daily relative strength index (RSI) reflected some near-term indecision at its mid-point. A move above the 37,900 level will validate buyers taking further control, which could see the index head towards the 39,300 level next.

Hang Seng Index (HSI) broke above channel in near-term upward bias

The HSI has managed to break above a descending channel pattern in place since May this year, reflecting buyers’ attempt for some recovery amid the broader risk-on environment. Its daily RSI reverted back above its mid-line as a sign of near-term bullish bias, while its daily moving average convergence/divergence (MACD) eyes for a crossover into positive territory. Further upside may leave the 18,370 level on watch as the next line of resistance to overcome, while on the downside, the 17,500 level will be immediate support to hold.