Asian Open: Keep an eye on AUD/JPY with sentiment on the back ropes

Thursday US cash market close:

• The Dow Jones Industrial fell -1063.09 points (-3.12%) to close at 32,997.97
• The S&P 500 index rose -153.3 points (2.51%) to close at 34,058.75
• The Nasdaq 100 index fell -685.156 points (-5.06%) to close at 12,850.55

Asian futures:

• Australia's ASX 200 futures are down -60 points (-0.82%), the cash market is currently estimated to open at 7,304.70
• Japan's Nikkei 225 futures are up 70 points (0.26%), the cash market is currently estimated to open at 26,888.53
• Hong Kong's Hang Seng futures are down -489 points (-2.37%), the cash market is currently estimated to open at 20,304.40
• China's A50 Index futures are down -177 points (-1.32%), the cash market is currently estimated to open at 13,286.92

The Fed can’t seem to do right for wrong at present. Just one day after markets rejoiced the Fed ‘only’ raising rates by 50-bps points, investors are now concerned that a 75-bps hike may be needed to tame surging inflation. And the irony here is that such a move simply increases the odds of slower growth (and therefore, lower stocks). So whichever way you splice it, investors don’t feel comfortable holding risk. But the fact that gold also fell suggests some are moving to cash, or simply rebalancing their portfolios to ether avoid or answer to a margin call. 

US yields and the dollar were higher as traders bet that the Fed may be forced to act more aggressively that they let on at yesterday’s FOMC meeting. The Nasdaq fell over -5% during its worst session since September 2020 and erased the week’s earlier gains. It seems a safe bet that ASX tech stocks will face the music today. And the Australian dollar, which only yesterday had it best session in over 10-years, erased all of that day’s gains during its worst session since in 14-months. That is volatility at its finest. And we may need to get used to it now the Fed are to begin quantitative tightening from June. Given the volatility of the past 48-hours and the weekend looming, many traders will be looking to reduce their risk exposure – whether that be hedging with safe havens or simply moving to cash. Which itself can lead to more erratic moves, so traders would be wise to remain nimble.

That said, with NFP lined up and little in the way of market-moving economic data today in Asia, we may find trading ranges to be limited for currencies unless we see a risk-off follow-through beforehand.

AUD/JPY shows the potential for another leg lower

AUD/JPY has caught our eye as one to watch for a break lower. Its rally saw a sharp reversal from 96, and its subsequent rebound appears to be corrective. A 2-bar bearish reversal formed yesterday, which is confirmed with a break beneath the 92.27 low. The initial target is the lows around 90.45, then the Fibonacci expansion zones around 90 and 89. Should we be treated to a 161.8% extension, then the support zone around 86.0 is in focus.

OPEC stick to the plan

OPEC stuck to their plan of raising output by a modest 432k bpd in June. It likely irks Western leaders as it doesn’t help tame their spiralling inflation and disappoints traders as it’s a surprise move which sparks the volatility they seek. This helped WTI initially break above $109, but the sharp falls across stock markets saw prices revert beneath resistance as part of a false break and potential swing high ahead of the weekend. And that’s not something natural gas has to worry about, with the US listed futures contract rising to its highest level since 2008 and traded just shy of $9.0. So the science is true; natural gas, does in fact, rise.

ASX 200:

ASX 200: 7364.7 (0.82%), 05 May 2022

• Info Tech (2.54%) was the strongest sector and Financial (-0.01%) was the weakest
• 10 out of the 11 sectors closed higher
• 6 out of the 11 sectors outperformed the index
• 83 (41.50%) stocks advanced, 110 (55.00%) stocks declined

Outperformers:

• +8.75% - Core Lithium Ltd (CXO.AX)
• +7.72% - Liontown Resources Ltd (LTR.AX)
• +7.6% - Pilbara Minerals Ltd (PLS.AX)

Underperformers:

• -2.16% - Summerset Group Holdings Ltd (SNZ.AX)
• -1.86% - EBOS Group Ltd (EBO.AX)
• -1.75% - Ansell Ltd (ANN.AX)

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