Clearer indication of risk sentiments up ahead: S&P 500, AUD/USD, Brent crude

Market Recap

With the US markets closed for holiday, global markets were fairly muted to start the new trading week, with the quiet economic calendar not providing much catalyst for market participants to tap on as well. The US dollar continues to take its breather after recent gains, allowing dollar-sensitive gold and silver prices to pare some previous losses. That said, with the previous metals still trading below their respective resistance (gold at US$1,870, silver at US$22.00), much still await on whether recent recovery indicates a lasting trend. Focus will remain on US dollar moves when trading volume returns from the US holiday break. With US inflation data last week seemingly keeping Fed members on their hawkish tone, the upcoming Federal Reserve (Fed) minutes release and US core Personal Consumption Expenditure (PCE) price index will be in focus this week to determine if further recalibration of rate expectations is needed. A terminal rate at 5.25%-5.5% remains the consensus from a week ago, but markets are still indecisive on the timeline for a rate cut towards the end of this year. Today will leave Canada’s inflation rate in focus, with any upside surprise likely to add to jitters around persistence in global inflationary pressures.

The broader trend for the S&P 500 continue to show an upward trend in place since October 2022 on higher highs and higher lows. Improving market breadth still provides some validation to the upward momentum. On the upside, the 4,200 level will stand as resistance to overcome, while near-term support may be at the psychological 4,000 level. The 4,000 level marks a confluence of support from a key 38.2% Fibonacci retracement level, along with an upward trendline support.

Asia Open

Asian stocks look set for a largely lower open, with Nikkei -0.58%, ASX -0.58% and KOSPI +0.14% at the time of writing. This morning saw the release of Reserve Bank of Australia (RBA) meeting minutes, with policymakers seemingly taking a step towards the hawkish end of the policy spectrum. Ongoing rate hikes seem to be consensus in the meeting, reflecting that policymakers have been uncomfortable with the recent revival in pricing pressures and pushing back previous hopes for an impending rate pause. Higher-for-longer rates seem to be the takeaway, with further rate increases confirmed in the minutes. Market pricing are leaning for additional 75-100 basis-points (bp) of hikes over subsequent meetings.

Initial reaction in the AUD/USD to the minutes was to the upside, but gains were reversed shortly thereafter. Near-term, the 0.691 level could need to be overcome, where a 76.2% Fibonacci retracement level stands, in order to pave the way towards the 0.700 level next. Failure to do so may reflect the formation of a lower high and reinforce its near-term downward bias. Greater conviction for support may be at the 0.678 level, where a Fibonacci confluence zone resides.

On the watchlist: Brent crude finding support at lower channel trendline but series of resistance lie ahead

Brent crude prices are inching higher to start the week, attempting to find some comfort from the demand outlook story with China’s recovery but gains thus far still seem to lack conviction. The gains follow after a retest of a lower channel trendline in place since December last year, with the formation of higher lows alongside an improving moving average convergence/divergence (MACD). That said, a series of resistance continue to lie ahead for oil prices to overcome. Near-term, a confluence of a downward trendline and its 100-day moving average (MA) stands at the US$86.12 level. Greater conviction may come from a move above the US$89.00 level, which will form a higher high and reinforces an upward trend. Having reacted negatively to US inflation data last week, Fed’s policies outlook will remain in focus and any hawkish takeaway from the upcoming Fed minutes may be a catalyst for further downward pressure for oil prices.

Monday: US markets closed for holiday, DAX -0.03%, FTSE +0.12%