Asian Open: Santa’s rally stumps its mistletoe, Nikkei bulls return

Asian Futures:

• Australia's ASX 200 futures are up 0 points (0.51%), the cash market is currently estimated to open at 7,295.70
• Japan's Nikkei 225 futures are down -260 points (-0.9%), the cash market is currently estimated to open at 28,806.32
• Hong Kong's Hang Seng futures are down 1 points (0%), the cash market is currently estimated to open at 23,476.50
• China's A50 Index futures are down -35 points (-0.22%), the cash market is currently estimated to open at 16,123.47

Thursday US Close:

• The Dow Jones Industrial fell -29.79 points (-0.08%) to close at 35,897.64
• The S&P 500 index fell -41.18 points (-0.88%) to close at 4,668.67
• The Nasdaq 100 index fell -425.657 points (-2.61%) to close at 15,863.94

It has been a busy 24-hours for central banks with the FOMC, BOE and ECB all taking turns in the spotlight. Whilst equities initially rallied following Jerome Powell’s press conference, growth stocks were offloaded by investors which weighed on the broader market. But we also saw the BOE come out swinging with an unexpected hike, whilst the ECB trimmed reduced one form of stimulus and ramped up another. It’s therefore likely some investors simply want to book profits and absorb the contrasting flow of information despite the lure of Santa’s rally. The Nasdaq 100 fell -2.6% and formed a bearish engulfing candle on the daily chart. The S&P 500 was down -0.9% although the Dow was effectively flat at -0.08%.

Bullish interest returns to the Nikkei 225

If we take a step back, we can see that the Nikkei 225 is trading in a large triangle formation on the daily chart. The main issue with hit however is that there is no clear trend preceding it, so it best we simply have a sloping trend support and resistance level. Yet higher lows clearly formed around 27.6k and its break above the 200-day eMA found support at it upon a retracement. Prices gaped higher yesterday and found support at the 50-day eMA, so we are now targeting a rally to said trend resistance. Should prices break yesterday’s high and make no attempt to fill the gap we will have greater confidence in the initial target being met sooner than later.

BOE: The contrarian boyfriend?

The BOE hiked interest rates by 25 bps yesterday, making it the second BOE meeting in a row where the central bank has done the complete opposite of market expectations. A November hike that was fully priced in never materialised, then December’s originally anticipated hike was repriced at 0% probability, only to see BOE hike. Their forward guidance could do with some work, perhaps?

GBP/JPY reached our bullish triangle target around 152.50 before revering the day’s gains post-ECB. It has invalidated its bearish trendline but the volatility of yesterday means we’ll step aside. GBP/USD was a top performer closed above 133.00.

US dollar index on track for another indecision week

Of course, there is another day of trading until the weekend but at the time of writing DXY (dollar index) is trading around 96.0, a level it has closed around the prior 4-weeks with three failed upper spikes stalling below 97.0. Perhaps the US dollar rally is now a little ‘long’ in the tooth and requires a pullback?

Gold glistened its way to a 1.2% rally

Yesterday’s rally was its best in 6-weeks and stopped just shy of 1800. We suspect traders took note of Powell’s comments on inflation being entrenched to help propel gold higher. Although there are several levels of resistance around 1800 which may scupper the rally being extended for now, unless we do see a deeper pullback on the US dollar.

WTI remains rangebound and in need of a catalyst. It may have invalidated trend resistance on the daily chart yet we need to see a break (or daily close) above 73.34 before becoming confident the break of trendline means anything. Otherwise a break / daily close below $70 places bears firmly back in control.

ASX 200 Market Internals:

ASX 200: 7295.7 (-0.43%), 16 December 2021

• Information Technology (2.07%) was the strongest sector and Healthcare (-5.07%) was the weakest
• 6 out of the 11 sectors closed lower
• 9 out of the 11 sectors outperformed the index
• 106 (53.00%) stocks advanced, 84 (42.00%) stocks declined
• 57% of stocks closed above their 200-day average
• 51.5% of stocks closed above their 50-day average
• 46% of stocks closed above their 20-day average

Outperformers:

• + 10.9% - Mesoblast Ltd (MSB.AX)
• + 6.89% - WiseTech Global Ltd (WTC.AX)
• + 5.4% - Lifestyle Communities Ltd (LIC.AX)

Underperformers:

• -8.16% - CSL Ltd (CSL.AX)
• -6.00% - Champion Iron Ltd (CIA.AX)
• -5.48% - Life360 Inc (360.AX)

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