US equities resumed its downward trajectory this week following a brief rebound last week, as earnings optimism failed to underpin geopolitical concerns arising from Khashoggi killing, which has put President Trump in a difficult position to deal with Saudi Arabia as more evidence is pointing towards murder.
Technically, the upward channel for S&P 500 index has broken and it has entered into a bearish trend, suggested by SuperTrend (10,3) and 10-Day SMA. A downward Fibonacci Extension suggests the next support level at 2,732 (38.2%) and 2,705 (50%) respectively.
Meanwhile, UK’s Prime Minister Teresa is facing leadership challenge on the proposal to extend Brexit transition to 2021, sending Sterling lower against the greenback. Ongoing Italian budget dissent is pressuring the Euro as well. As a result of both, US dollar index extended its rally to the 95.7 area – four weeks high.
Technically, EUR/USD has come to a key support level at around 1.146 area – a 38.2% Fibonacci Extension level. Breaking down below this area will open up for more downsides toward the next Fibonacci levels at 1.142 and 1.137 area respectively. A rebound from here, however, would likely form a bullish ‘double bottom’ pattern. Due to rising political uncertainties in the Euro zone recently, the odds will probably be biased on dollar’s upside.
In Asia, Shanghai Composite registered its biggest two-day rally seen since 2015, rising over 7% from last Friday. Market reacted positively on disappointing 3Q GDP readings, which gives more room for the policymakers to carry out stimulus and maintain accommodative monetary policy in order to cushion the slowdown. Authorities are increasingly concerned about share-pledge causing stock sell-off, and they encourage local government funds to help stabilise the stock market. The sharp rebound seen over the last two days was largely policy-driven, in an effort to contain financial system risks.
In Singapore, rally in Shanghai and Hong Kong yesterday failed to boost local confidence, as earnings season remains the biggest uncertainty to be unveiled in the weeks to come. Stock market sell-off and property cooling measures may have substantial impact to this earnings season due to lower investment returns, holding company’s market value and slower bank loan growth.
US SPX 500 - Cash
By Margaret Yang in Singapore
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