Asia Day Ahead: US dollar struggles, HSI and Nikkei 225 on watch

Asia Open

The Asian session was set for a muted open, with Nikkei -0.10%, ASX -0.04% and KOSPI +0.01% at the time of writing. Broader risk sentiments were offered little cues to start the week, with Wall Street offline for Memorial Day holiday while major US indices were kept in a short-term consolidation mode over the past week in wait for the upcoming US Personal Consumption Expenditures (PCE) price data release.

With optimism that the Federal Reserve (Fed) will have room to consider rate cuts as early as September this year, the Fed’s preferred gauge of inflation will be on watch to offer assurances that US inflation remains under control. Expectations are for headline and core PCE to remain unchanged at 2.7% and 2.8% year-on-year. Barring any significant upside surprise, market participants may be assured that keeping rates at current level for longer will do the job, which could keep the risk environment supportive of further gains.

The US dollar has attempted to pare some of its post-consumer price index (CPI) losses, but failed to find much follow-through last week despite firmer US Treasury yields. The US dollar index is now back to retest a key upward trendline support at the 104.00 level, with any breakdown of its May 2024 low likely to pave the way to the 102.60 level next. Thus far, its daily relative strength index (RSI) struggled to cross the key 50 level just yet, with a recent retest of the mid-line met with some strong resistance.

What to watch: Hang Seng Index (HSI)

After touching its nine-month high last week, the HSI was met with a near-term retracement as technical conditions moderate from previous extreme overbought levels. Its daily RSI is back to retest the key 50 level, which may have to see some defending from buyers to keep the upward bias intact. Stronger line of support may be found at the 18,356 level – a horizontal support in coincidence with a Fibonacci retracement level, with one to watch for any formation of a higher low to keep the upward trend going.

What to watch: Nikkei 225

The Nikkei 225 index continues to trade in wider indecision thus far, as the index hovers within an ascending wedge with near-term resistance at the upper edge of its daily Ichimoku Cloud around the 39,000 level. A flat-lining daily moving average convergence/divergence (MACD) points to ranging moves for now, with one to watch for any breakout of the wedge pattern to signal buyers or sellers in greater control. Any dip below the 38,300 level could prompt a wider retracement towards the 36,600 level while on the upside, the upper wedge resistance at the 39,650 level may be a key obstacle for buyers.