US Dollar, Nikkei 225, AUD/JPY

Marketing Summary

Earnings from Netflix and Tesla led to some profit-taking in big tech companies overnight, as pockets of weakness in their results appeared to raise concerns about other big tech results to come as well. Given the stellar tech rally since the start of the year, market participants may be valuing not just an earnings beat, but strong guidance in corporate earnings over the coming quarters with current hopes of a “soft landing.” Any signs to challenge that narrative may require some re-evaluation in its current high rating.

Wall Street ended mixed overall (DJIA +0.47%; S&P 500 -0.68%; Nasdaq -2.05%), with further gains in value sectors as the DJIA delivered its ninth winning streak. A weaker-than-expected reading in the Philadelphia Fed Manufacturing Index (-13.5 vs. -10 forecast) and a deeper contraction in the Conference Board’s Leading Economic Index were largely brushed aside, with the earnings season taking center stage and expectations well positioned for the Fed’s latest rate cut next week. Treasury yields were mostly headed higher, with 10-year yields jumping 10 basis points (bp) overnight.

One to watch may be the US dollar, which has returned to retest its previous support resistance level at the 100.50 level. For now, the broader trend of lower highs and lower lows could still suggest sellers are largely in control, while the odds are that the recent upward move is an imminent easing of oversold technical conditions after a strong 4% sell-off over the past two weeks. Failure to recover the 100.50 level over the next few days could leave its July 2023 low at the 99.00 level for a retest.

Source: IG charts

Open Asia

Asian shares look set for a negative opening, with Nikkei -0.69%, ASX -0.22% and KOSPI -0.75% at the time of writing. The economic calendar is relatively quiet to end the week, with focus this morning revolving around Japan’s inflation data for June. The headline print was lower than expected (3.3% vs. 3.5% year-on-year), but the core aspect continues to show some persistence with consensus matching at 4.2%.

That may still keep speculation about a policy adjustment from the Bank of Japan (BoJ), with Japanese 10-year bond yields hovering near its two-month high heading into the BoJ meeting next week. While there has recently been some pushback from authorities for a July move, the consensus remains that policy change will be a matter of when and could eventually happen before the end of this year.

Any sharp change in political settings can be negative for the Nikkei 225 index, as seen by the 2% sell-off back in December 2022 on the surprise yield curve control (YCC) of the BoJ. But while that is still perceived as a few rallies away, the index is currently trying to defend a key double neckline at the 32,400 level. The recent lower highs on its Relative Strength Index (RSI) point to some exhaustion in upward momentum for now, while the index is trying to stay above its 100-day moving average (MA) for now. Failure to defend the 32,400 level may pave the way for the next line of support at the 31,400 level.

Source: IG charts

In the spotlight: AUD/JPY back to test key resistance again

Hotter than expected jobs data out of Australia yesterday prompted a hawkish recalibration in rate expectations for the Reserve Bank of Australia (RBA), as market participants priced in a higher probability of a 25 bp move by the central bank next month. That triggered an initial jump in the AUD/JPY before the weaker risk environment dampened some optimism around the risk-sensitive AUD.

With that, the AUD/JPY returns again to retest its key resistance at the 95.34 level, with an imminent ascending triangle pattern on the four-hour chart. Buyers may need to overcome the 95.34 level to provide greater conviction for a move to retest its June 2023 high, but for now, the risks of a lower high are still present, with any downside potentially leaving the 93.20 level as immediate support.

Source: IG charts

Thursday: DJIA + 0.47%; S&P 500 -0.68%; Nasdaq -2.05%, DAX +0.59%, FTSE +0.76%