Markets to watch this week

US consumer price index (CPI) data to provide fresh assessment of inflation risks

Wall Street saw the familiar 'good news is bad news' dynamics at play last week, as strong US labour data, combined with robust services Purchasing Managers' Index (PMI) and weekly jobless claims, pushed expectations for Federal Reserve (Fed) rate cuts further into the future. Current projections indicate only a single rate cut in July 2025 through the year, which naturally saw US Treasury yields head higher on hawkish Fed expectations, with the 10-year yields extending another 7 basis points (bp) last Friday to 4.76%.

Yields at this level—currently above 4.5%—appear to weigh heavily on risk sentiment, with market trends over the past year indicating persistent downward pressure whenever yields cross this threshold. A meaningful reversal in bond yields will be needed to offer risk markets some stability ahead, with the spotlight placed on the US CPI and retail sales data this week.

The US 4Q earnings will also kickstart this week, with major US banks leading the way. Among the eleven S&P 500 sectors, the financial sector is expected to lead in year-over-year earnings growth. Market participants will be closely monitoring how the high-for-longer rate prospects may support the sector's outlook, alongside the banks’ assessments of economic risks.

US Dollar Index: Rising wedge formation remains at play

The US dollar has been trading within a rising wedge since September last year, with recent bounce off its lower trendline validating the prevailing upward trend. The only reservation is that the dollar is now nearing its upper wedge trendline, alongside risks of lower highs on daily relative strength index (RSI), which may suggest buying-on-weakness as the lower-risk option. Economic data this week may likely reinforce hawkish Fed rate expectations further. US headline and core inflation are expected to reflect little disinflation progress, while US retail sales data could reinforce US consumer resilience with its consistent outperformance since June 2023.

Levels:

R2: 110.86
R1: 109.81

S1: 109.00
S2: 107.45

US Dollar Index chart:

US Tech 100: Near-term descending triangle on watch

Amid the “good news is bad news” dynamic, economic data this week (US CPI, retail sales) with the tendency to further reinforce the Fed’s patience in rate cuts may call for some caution. The Nasdaq 100 has been trading within a near-term descending triangle, as a series of lower highs reflect exhausting buyers’ strength. Its daily cloud support is at risk of a breakdown, while its daily RSI struggled to cross above its midline for now. Any move below the 20,735 level may potentially extend the retracement to the19,875 level next.

Levels:

R2: 22,000
R1: 21,300

S1: 20,735
S2: 19,875

Emerging Markets Index: Near-term bearish trend likely to extend further

Strength in the US dollar and higher Treasury yields on the back of discounted Fed rate expectations have created headwinds for the Emerging Markets Index, with challenges stemming from increased capital outflow, currency depreciation and reduced policy flexibility. A new five-month low for the index marked a breakdown of a near-term descending wedge and an upward trendline support. An attempt to revert above its daily RSI midline was also faced with rejection last week, while the index trades below its various moving averages as an indication of near-term bearish bias.

Levels:

R2: 1,154
R1: 1,113

S1: 1,061
S2: 1,000

Emerging Markets Index chart:

Brent Crude: Signs of buyers taking back control

A prolonged consolidation in oil prices over the past months suggests that bearish pressures have been exhausted, which paved the way for a renewed move higher into 2025 on headlines of tough US sanctions on Russian oil supplies, alongside stronger US data supporting oil demand outlook. Prices have broken above a critical downward trendline resistance and moved beyond the daily Ichimoku Cloud resistance for the first time in six months. The daily RSI has climbed above its midline, while a rising moving average convergence/divergence (MACD) signals growing upward momentum. The immediate focus will be on the US$81.00 level as a key resistance to clear.

Levels:

R2: 84.51
R1: 81.00

S1: 76.00
S2: 72.70

Brent Crude chart:

AUD/JPY: Key trendline as make-or-break moment ahead

The shunning of risks on the back of hawkish Fed views has dragged the AUD/JPY to its three-week low and put a key upward trendline at risk of a breakdown. So far, recovery attempts have been lacklustre, with the pair facing bearish rejections at daily cloud resistance. Adding to the downside pressure, the daily RSI has consistently failed to reclaim its midline. A breakdown below the trendline support near the 96.00 level would solidify the bearish outlook, potentially paving the way toward the next key support at 93.61.

Levels:

R2: 101.26
R1: 98.55

S1: 96.00
S2: 93.61

AUD/JPY chart: