Wed, Oct 05, 2022 @ 12:20 GMT
HomeAction InsightMarket OverviewDollar and Yen Weaken Again on Strong Risk-on Market

Dollar and Yen Weaken Again on Strong Risk-on Market

Dollar turns softer again in Asian session today as markets are back in full risk on mode. Following the record runs in US, Nikkei is also hitting new 30-year high. Yen is following as second weakest for now. However, risk appetite is not clearly seen elsewhere. Australian and Canadian Dollars are just mixed. Sterling struggled to ride on Brexit trade deal to break out, and stays soft. Gold and oil price are also range bound.

Technically, USD/CHF is displaying some weakness today and focus is back on 0.8822 support (though it’s still a bit far). Break there will resume larger down trend. Such development could help push EUR/JPY through 1.2272 resistance to resume near term up trend. Meanwhile, EUR/JPY is also eyeing 127.01/7 resistance zone. Break there will confirm up trend resumption.

In Asia, currently, Nikkei is up 2.35%. Hong Kong HSI is up 1.06%. China Shanghai SSE is down -0.34%. Singapore Strait Times is up 0.24%. Japan 10-year JGB yield is down -0.0026 at 0.019. Overnight, DOW rose 0.68%. S&P 500 rose 0.87%. NASDAQ rose 0.74%. 10-year yield rose 0.007 to 0.933.

DOW, S&P 500 & NASDAQ hit record, setting stage for strong Q1

US stocks resumed recent up trends overnight as supported by the pandemic fiscal stimulus. All three major indices, DOW, S&P 500 and NASDAQ closed at new record highs. DOW’s close above 38.2% projection of 18213.65 to 29199.35 from 26143.77 at 30340.30 is taken as a sign of solid underlying buying. We might see upside momentum intensify as traders are back from holidays next week. Tentatively, next target is 61.8% projection at 32932.93.

NASDAQ also matched corresponding level of 38.2% projection of 6631.42 to 12074.06 from 10822.57 at 12901.65, but closed slightly below. Another take on the level could be seen before weekend. Sustained trading above there will further affirm overall bullishness in the markets, and pave the way to 61.8% projection at 14186.12.

S&P 500 is lagging behind in this perspective as it’s still a bit below 38.2% projection of 2191.86 to 3588.11 from 3233.94 at 3767.30. We’ll keep an eye on SPX and firm break above they level should seal the case for a strong bullish Q1 in the US markets, as well as global markets too.

Oil and gold range bound despite strong risk rally

While strong risk appetite is seen in stock markets, oil and gold are stuck in range. WTI crude oil’s rally attempt is limited below 49.25 resistance and 50 psychological level is too much to overcome for now. Consolidation from there could extend further. But even in case of deeper pull back, downside should be contained by 43.50 cluster support (38.2% retracement of 33.50 to 49.25 at 43.23) to contain downside to bring rebound.

Gold’s attempt on 1900 handle and 1906.74 resistance failed yesterday. As long as 1856.98 support holds, we should see rebound from 1764.31 resumes sooner rather than later. Sustained break of the medium term channel resistance will affirm the view that corrective fall from 2075.18 has completed with three waves down to 1764.31. Further rally should be seen then to 1965.50 resistance to confirm. Though, break of 1856.98 will risk more downside first and turn focus to 1819.05 support.

NZD/JPY struggles in range, but stays bullish

Developments in commodity-yen crosses are disappointing considering the strong risk-on markets. NZD/JPY is still stuck in range below 74.30 short term top. The notable support from 72.79 resistance turned support is a sign of near term bullishness. Yet, NZD/JPY has to break through 74.30 to confirm resumption of whole up trend from 59.49. In that case, next upside target is 100% projection of 63.45 to 71.66 from 68.86 at 77.07.

However, considering bearish divergence condition in daily MACD, sustained break of 72.79 would argue that rise from 59.49 has completed with a five-wave sequence. Deeper correction could be seen back towards 68.86 support for the near term first.

USD/CHF Daily Outlook

Daily Pivots: (S1) 0.8869; (P) 0.8894; (R1) 0.8912; More….

Intraday bias in USD/CHF remains neutral first as consolidation from 0.8822 might extend. Still, in case of another recovery, upside should be limited by 0.8982 resistance to bring fall resumption. On the downside, break of 0.8822 will resume larger down trend for 61.8% projection of 0.9901 to 0.8998 from 0.9304 at 0.8746 next.

In the bigger picture, decline from 1.0237 is seen as the third leg of the pattern from 1.0342 (2016 high). There is no clear sign of completion yet. Next target will be 138.2% projection of 1.0342 to 0.9186 from 1.0237 at 0.8639. In any case, break of 0.9304 resistance is needed to signal medium term bottoming. Otherwise, outlook will remain bearish in case of rebound.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
14:00 USD S&P/Case-Shiller Home Price Indices Y/Y Oct 6.90% 6.60%

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