The US dollar index retraced to 95.6 area ahead of Federal Reserve chair Janet Yellen’s congressional speech tonight at Washington.

Forex traders are waiting for her speech to reveal more clues on the future outlook on US’s monetary policy. Right now, the central bank is trying to strike the right balance between robust job market versus subdued wage growth and inflation. According to Bloomberg’s interest rate probability forecast, the likelihood of one more rate hike in December stands at around 47%.

The markets are also waiting for more clues from Ms Yellen regarding Fed’s plan to cut its US$4.5tn balance sheet, which is expected to kick off at the end of this year.

Tonight, the Bank of Canada will also reveal its interest rate decision at 10pm (Singapore time). Consensus sees over 90% probability that the central bank will start hiking rates for the first time since in seven years, as the low interest rate environment has helped to revitalise the economy and also bolster the housing market in recent years. CAD/USD has surged over 6% since early May, partially fuelled by expectation of tightening monetary policy. As this rate hike have already been priced-in, there could potentially result in a ‘sell on facts’ scenario.

Asian markets diverge

There were some unusual divergence observed in marketstrading in Asia yesterday. Hong Kong (+1.48%) leading the gains and Singapore (-0.75%) leading the losses. The Hang Seng Index surged 377 points to 25,877 points, with Technology (2.48%) and Consumer Discretion (+2.46%) sectors outperforming. Southbound flow via HK-SH link continues to provide liquidity and support to Hong Kong shares, among which are HSBC (5 HK), Orient Overseas (316 HK) and Ping An Insurance (2318 HK) were at the top of the Southbound flow list yesterday.

Yet, the weather was quite different in Singapore. To many people’s surprise, the Straits Times Index has lost 24 points or 0.75% and closed at 3,222 points despite most Asian markets closing higher. The Straits Times Index has been hovering within a well-defined range of 3,200-3,270 for over two months. Investors are probably waiting for the release of the earnings season which might provide fresh catalysts to drive market movements.

Technical analysis

Hong Kong 50 - Cash

  • Strong price breakthrough above 10-Day Simple moving average, with higher trading volume. This indicates that the long side is taking control again.
  • SuperTrend (10,2) remains in bearish set-up, but it could flip upwards if price breakout major resistance level of 26,150 (100% Fibonacci level)
  • Momentum indicator MACD is about to form a bullish crossover

CAD/USD

  • SuperTrend (10,2) remains in bullish set-up
  • 10-Day Simple moving average sloped upwards
  • MACD continued to trend upwards, but the momentum has slowed down and could potential form a bearish crossover of price retrace mores
  • Immediate support level could be found at 0.7739 (161.8%) and 0.7687 (138%) area
  • Immediate resistance levels can be found at 0.7822 (200%)

 

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