Asia Day Ahead
Wall Street taking a break as Apple fails to commit to an all-time high
The Nasdaq experienced a mixed performance on Wall Street, with its initial gains eventually being reduced by the end of the trading day. This was due in part to a decrease in optimism regarding Apple’s share price following the unveiling of its Vision Pro augmented-reality headset. Although Apple’s share price briefly reached an all-time high during the day, it did not sustain this level and failed to confirm it at market close. As a result of overbought technical conditions and rejection of its all-time high, any further weakness from Apple could potentially lead to downward pressure on the broader markets.
The US ISM services PMI read revealed additional indications of weakened US economic conditions. The actual reading of 50.3 was lower than the forecast of 52.5. Although the moderation in its prices sub-index is encouraging for inflation, the decline in the services employment sub-index into contractionary territory and the significant slowdown in new orders present a trade-off for growth. Additionally, April’s factory orders showed underperformance with an actual reading of 0.4% compared to a forecast of 0.8%.
The decline in Treasury yields as a result of weaker data caused the US dollar to reduce its initial gains. This lackluster performance by the US dollar is advantageous for gold prices, which have managed to maintain their crucial trendline support at the level of US$1,940, albeit temporarily. Additionally, the positive outlook for oil prices based on a decrease in supply has lost some momentum.
The Russell 2000 index has been fluctuating within a certain range since March of this year. Recently, the upper bound was breached, indicating that buyers may have gained greater control. However, the newly established support level at 1,800 will need to be defended in the near future. Currently, market breadth seems supportive as the percentage of stocks above its 50-day moving average has reached a new multi-month high. If the 1,800 level is not defended successfully, there may be a false breakout scenario which could result in selling pressure and challenge the 1,740 level next.
At the present moment, the Nikkei is down by 0.22%, the ASX by 0.72%, and the NZX by 0.36%, indicating a gloomy start for Asian stocks. It should be noted that South Korea markets are not trading due to a holiday.
The key event for today is the decision on the interest rate by the Reserve Bank of Australia. The market is anticipating a pause in rates at the upcoming meeting, with a 64% probability according to cash rate futures pricing. However, there is still an expectation of future rate hikes. This suggests a hawkish-pause scenario, due to the lack of conviction from April’s uncontrolled inflation to support an extended pause.
Observations regarding the terminal rate are being actively monitored. Market assessments currently indicate a preference towards a rate of 4.1% (as compared to the current 3.85%), indicating imminent advancement towards the last stage of monetary tightening. Disputes on this matter may lead to a more aggressive reorientation towards such expectations, thereby bolstering the Australian Dollar in the short term.
In late-May, the AUD/USD currency pair fell below the lower bound of a rectangle pattern, which was a consolidation zone. However, last week, it quickly regained the 0.656 level and displayed a bullish MACD crossover on the daily chart, indicating a possible turnaround in short-term momentum. Nevertheless, since February of this year, the pair has been trading within a falling wedge pattern that is characterized by lower highs and lower lows. This persistent pattern could still result in downward bias until several resistances are overcome. These obstacles include the upper wedge trendline resistance, its Ichimoku cloud, its 100-day moving average, and the upper bound of its consolidation pattern. If these resistances remain unchallenged, it could lead to another lower high formation.
Silver prices have formed a bullish pin bar upon retesting the 100-day moving average
The US dollar’s brief pause has led to a degree of durability in the silver market overnight. The 100-day moving average was tested, and a bullish pin bar emerged, indicating some short-term buying on dips. At present, any upward movement may help complete a small inverse head-and-shoulder pattern that has been present since mid-May 2021; however, it is still too early to determine if this pattern will manifest.
In the context of financial markets, the US$24.00 level is identified as a crucial resistance barrier that must be surpassed in order to instill greater confidence among investors who are optimistic about future price movements. The inability of prices to exceed this threshold in the past month has been observed on two separate occasions. If this resistance level is successfully surpassed, it could signify a significant breakthrough in the inverse head-and-shoulder pattern, which may lead to further increases towards the US$24.70 level.
