Asia Day Ahead: AUD/USD hovering below resistance, while USD/SGD trades on higher lows

Asia Open

The Asian session is set for a weak open, with Nikkei +0.03%, ASX +0.02% and Kospi -0.95%. The mixed closing in Wall Street overnight did not offer much of a clear direction, as US tech heavyweights saw some profit-taking with rotation to the laggard sectors such as energy. With triple witching and index rebalancing up ahead, more short-term volatility is like to follow as investors trade positions, but the broader uptrend in major US indices is likely to persist once the dust settles.

Economic data this morning leaves focus on Japan’s inflation rate, where both the headline and core inflation has ticked higher for the first time in three months. However, pricing pressures have clearly not been broad-based, as the core-core reading (which excludes food and energy prices) actually eased to 2.1% from 2.4% prior.

This does not seem to provide much conviction that higher wage growth is feeding into consumption and keeping inflation “sustainable around its 2% level”. We will have one more month of data before the next Bank of Japan (BoJ) meeting, which will be on close watch to determine if markets are getting ahead of themselves by leaning towards a potential rate hike in September this year.

The yen continues to weaken lately, with the USD/JPY edging above the 159.00 level and within a hand reach of the previous intervention high at the 160.20 level. While that may help to support the Nikkei to some extent, gains in the index remain limited as it continues to trade in its consolidation phase. On the other hand, a lack of concrete policy support from Chinese authorities saw the Hang Seng Index (HSI) trade weaker in today’s session. In line with a mixed run of economic data over the past week, optimism seems to have dwindled, with the technical support at the 17,800 level on watch next.

AUD/USD still finding conviction for a breakout of wedge pattern

The AUD/USD continues to consolidate below an upper trendline resistance of a broader wedge formation, with its daily relative strength index (RSI) attempting to defend its key mid-line but the formation of lower highs on the RSI still offered a mixed view overall. One may have to watch for a break above the downward trendline resistance at the 0.671 level for more conviction of buyers’ strength, while its RSI should reflect a stronger uptick in momentum. On the downside, the 0.659 level will be on watch as immediate support to hold, which marked the lower base of the current consolidation phase.

USD/SGD still trading on higher lows

Despite a weaker-than-expected showing in the US recent consumer price index (CPI), the USD/SGD managed to defend an upward trendline support thus far, with the formation of higher lows still keeping an upward bias intact. The pair has pared all of its post-CPI losses, seemingly setting its sight to retest the next key resistance at the 1.357 level, which has weighed on the pair on multiple previous occasions. On the downside, the upward trendline support at the 1.350 level may have to hold, failing which could signal weaker buyers’ strength.