Wall Street fell again yesterday, as bullish momentum temporarily ebbs, spurring investors to lighten risk. The S&P 500 lost 0.44%, the NASDAQ slipped 0.72%, and the Dow Jones eased by 0.44%. US index futures have continued a downward trajectory this morning, with all three major indices lower by around 0.35%.
The US malaise has spilt over into Asian markets, which are tracking lower today. The Nikkei 225 has fallen 1.25%, with the KOSPI down 0.70%. Mainland China’s Shanghai Composite is 0.60% lower, with the CSI 300 falling 0.75%. The Hang Seng is down 1.05%.
Much the same pattern is repeating regionally, with Singapore down 1.30%, Thailand down 0.70% with Jakarta 0.05% lower. Only Malaysia is bucking the trend, climbing 0.15%. Australian markets are enduring a tough day, with the ASX 200 and All Ordinaries down 1.40%.
The ebbing bullish sentiment has coincided with the end of the trading week. That has probably exaggerated the moves lower in Asia as investors reduce exposure to weekend headline risk. Overall, today’s falls look like a corrective unwinding of bullish exuberance, which I am sure will return soon enough.
US Dollar edges lower
The US dollar lost ground overnight, but overall, currency markets remain in a range-trading mode awaiting more precise signals from other parts of the financial market universe. US yields edged lower overnight, and that appears to have sparked a partial reversal of the short squeeze that had prevailed over the previous two sessions.
The dollar index fell 0.39% to 90.59 overnight, edging up to 90.64 this morning in directionless pre-weekend trade. Support remains in the 90.00 regions, with resistance around the month’s highs at 91.60, also home to its 100-day moving average. A daily close above or below those levels will signal the dollar’s next directional move.
Sterling allied impressively overnight, against both the dollar and the euro. GBP/USD rose from 0.80% to 1.3970, near the top of its multi-month ascending wedge at 1.4010. With Britain’s COVID-19 vaccination programme leaving Europe in the dust, markets are pricing a much faster recovery and rightly so. GBP/USD looks poised to break-out imminently and will target the 1.4400 in the weeks ahead. EUR/GBP support failed at 0.8660 overnight, and the cross looks set to test 0.8600 next week and then 0.8300 in the month ahead.
The PBOC set the Yuan fixing at 6.4624 this morning, with USD/CNY trading at 6.4700. If the PBOC keeps setting USD/CNY at neutral levels around 6.4500, any fallout from a stronger US dollar on Asian regional currencies will be limited. Most are unchanged in quiet trading this morning. The Indonesian rupiah has fallen 0.50% to 14,085.00 against the dollar today, after the Bank of Indonesia cut rates again yesterday. The Rupiah has weathered that storm relatively well, but the slow grind lower by the rupiah likely means that BI has finished easing unless the US dollar stages a broad sell-off.