Asia Day Ahead: Reservations around risk-taking prevails, USD/SGD eyeing 11-month high

Market Recap

A slight breather in the US Treasury sell-off last Friday failed to translate into a positive session for Wall Street, as ongoing conflict in the Middle East and Federal Reserve (Fed) Chair Jerome Powell leaving the door open for further hikes continues to drive reservation around risk-taking. The VIX has reclaimed its key 20 level, reflecting market participants on a more risk-off stance, while chatters revolved around the S&P 500’s downward break of its key 200-day moving average (MA).

The downward move in the S&P 500 last Friday pointed towards a breakdown of the lower trendline support of an ascending channel pattern in place since its October 2022 bottom. For now, its daily Relative Strength Index (RSI) has struggled to cross back above the 50 level for now, which leaves sellers in control. The 4,182 level may be on watch next, which marks a 38.2% Fibonacci retracement and a previous resistance-turned-support.

The new week may be more earnings-driven with key notable earning releases from indices’ heavyweight – Alphabet, Microsoft, Meta Platforms and Amazon. Surging bond yields, particularly in the US 10-year, have left tech equities’ valuation in focus with investors seeking for justification in terms of earnings outlook.

The US core personal consumption expenditures (PCE) price data will also be in focus this week. Given the blowout US September job report and higher-than-expected headline consumer price index (CPI), any persistence reflected in the inflation numbers may easily shift bets for an additional rate hike in December.

Asia Open

Asian stocks look set for a downbeat open, with NIkkei-0.34%, ASX -0.89% and KOSPI -0.22% at the time of writing. The quiet economic calendar to start the week may drive sentiments to take its cue from the negative handover from Wall Street. Hong Kong, New Zealand and Thailand markets are also off for holiday today.

The economic calendar today may leave Singapore’s inflation data on watch. Headline inflation is expected to tick slightly higher to 4.1% from previous 4.0%, while the core aspect is expected to soften to 3.1% from previous 3.4%. Further moderation in the core inflation for the fifth straight month may reflect some success in tighter policies and provides justification for the Monetary Authority of Singapore (MAS)’s recent decision to keep its exchange rate-based monetary policy unchanged at the October meeting.

Buyers seem to remain in control for the USD/SGD, successfully defending the 1.360 level after an upward break of a ranging pattern in early-September this year. Its daily RSI is also trading above the key 50 level since August, keeping an overall upward trend in place for now. The 1.376 level will be the next immediate resistance to overcome, with any successful break potentially leaving the 1.393 level on watch next.

On the watchlist: EUR/USD hangs above support ahead of ECB rate decision this week

Despite the broader risk-off environment, the EUR/SGD continues to hang above its horizontal support at the 1.051 level, with rising daily Moving Average Convergence/Divergence (MACD) pointing to an uptick in positive momentum. Its daily RSI is also back to retest the key 50 level and an upward break of the level may be crucial after failing to overcome it since July this year.

All eyes will be on the European Central Bank (ECB) rate decision this week, with developments since the last meeting increasingly shifted the balance against any further tightening of monetary policy, but guidance on where policymakers have their eyes on to determine additional tightening will be the focus. Any break above its October 2023 high may support a move to retest the 1.080 level next, while immediate support remains at the 1.051 level.

Friday: DJIA -0.86%; S&P 500 -1.26%; Nasdaq -1.53%, DAX -1.64%, FTSE -1.30%