Market Recap

While US equity markets managed to pare the bulk of their losses last Friday, they failed to hold up into the new week in light of the upside surprise for US November Institute for Supply Management (ISM) services Purchasing Managers' Index (PMI). Consensus was for the data to display further moderation in services sector’s conditions amid the series of aggressive rate hikes, but the sharp pull-ahead above October reading seems to suggest little progress. Order backlogs, new orders and business activities continue to see expansion, while reading for prices paid barely saw a downtick, with the overall data pointing to a higher-for-longer rate environment in curbing demand. Interest rate expectations saw a slight adjustment towards the hawkish end, with Treasury yields higher across the board and some renewed strength flowing into the US dollar. All 11 S&P 500 sectors are in the red, with a defensive lean presented in the markets. Ahead, the economic calendar for the US may be relatively quiet, which could keep the cautious environment in place.

For the S&P 500, after trading in a rising channel pattern since mid-October this year, it is currently facing a test of resistance at a longer-term downward trendline. The downward trendline may be crucial, considering that failure to overcome it could keep the broader downward trend in place on lower highs. That could leave the trendline resistance at the 4,100 level on watch ahead.

Asia Open

Asian stocks look set for a muted open, with Nikkei +0.05%, ASX -0.15% and KOSPI -0.29% at the time of writing. Some unwinding of previous bullish bets could be on the table for Chinese equities, with the Nasdaq Golden Dragon China Index paring back their initial gains to close flat overnight (+0.30%). The key event in the region today will be the Reserve Bank of Australia (RBA) interest rate decision. The RBA has been one of the first few central banks to tone down their rate hike process and while a 25 basis-point (bp) hike is the consensus, some expectations are brewing for a no-change (21% probability). A surprise slowdown in Australia’s October inflation to 6.9% from previous 7.3% does provide some support in showing that the central bank is on the right path but being still a distance from its target rate should keep the rate hikes going. Any hawkish guidance will be on watch, although sticking to its usual script seems to be the likely scenario, with chances for a no-surprise.

The AUD/USD has broken above a key resistance at the 0.674 level last week, where a longer-term downward trendline stands in coincidence with a Fibonacci confluence zone. That said, renewed US dollar strength overnight on the back of stronger US economic data are driving sellers to challenge the zone once more, with one to watch if the pair can defend the level over the coming days. Failure to do so could leave the 0.652 level in sight as the next Fibonacci confluence zone for near-term support.

On the watchlist: Bullish hammer formation for USD/SGD suggests some dip-buying

After a 7% decline from its September peak, the USD/SGD pair was marked with the formation of a hammer pattern overnight, which could suggest dip-buying efforts and lift the chances of some near-term reprieve. This comes as technical conditions such as the relative strength index (RSI) and moving average convergence/divergence (MACD) point towards oversold levels, while the pair attempts to defend its 1.350 level of key support. A close above the hammer pattern may be on watch over the coming days to provide further validation. Any upside could also drive the formation of a bullish divergence on MACD, leaving any relief towards the 1.366 level in focus for the pair.

Monday: DJIA -1.40%; S&P 500 -1.79%; Nasdaq -1.93%, DAX -0.56%, FTSE +0.15%