Asian Open: USD/JPY rips higher post-FOMC

Wednesday US cash market close:

• The Dow Jones Industrial fell -129.64 points (-0.38%) to close at 34,168.09
• The S&P 500 index fell -6.52 points (-0.15%) to close at 4,349.93
• The Nasdaq 100 index rose 23.637 points (0.17%) to close at 14,172.76

Asian futures:

• Australia's ASX 200 futures are down 0 points (-0.1%), the cash market is currently estimated to open at 6,961.60
• Japan's Nikkei 225 futures are down -80 points (-0.3%), the cash market is currently estimated to open at 26,931.33
• Hong Kong's Hang Seng futures are down -3 points (-0.01%), the cash market is currently estimated to open at 24,286.90
• China's A50 Index futures are down -39 points (-0.26%), the cash market is currently estimated to open at 15,187.31

The Fed held rates as widely expected although they could begin hiking them as soon as their next meeting. And raising them at each FMC meeting has not been ruled out either. Furthermore, asset sheet purchases will conclude in early March and, once the first hike is out of the way, balance sheet reduction can commence (presumably after March).

Investors were quick to offload bonds and sent yields sharply higher. The US 2-year rose +12 bps to around 1.15%, its highest level since February 2020. US indices handed back earlier gains after receiving the memo that company profits will likely be squeezed as higher rates increases debt repayments. The S&P 500 was down -0.15% by the close despite initially rallying 3.4%.

Dollar rallies on hawkish FOMC meeting

The USD was the strongest currency on the prospects of higher rates, with the dollar index (DXY) clearing trend resistance with ease and rising to a 1-month high. USD/CHF sprang back above its 200-day eMA and sits at a 2-week high, whilst AUD/USD fell back towards Monday’s low after again finding resistance at a broken trendline on the daily chart. We suspect the Aussie could now head for 70c, just above key support at 0.6698.

A setup that has caught our eye is on USD/JPY. The pair fell back to the 113.48 low ahead of the meeting yet, as the level held, has now become a double bottom ahead of a trendline break. The double bottom held above the 100-day eMA and yesterday’s bullish candle closed back above the 50-day eMA and trendline. Given a stochastic buy signal also occurred around the swing low we are now bullish above 1.13.48, although we wouldn’t want to see prices break back beneath yesterday’s low, and we could see any subsequent retracement within yesterday’s range hold above 114 which is near the 50-day eMA. 115 is now an interim target but this could have the ability to retest 116 given yield differentials for US-JP 2-year spread.

BOC held rates (not as expected)

The Bank of Canada wrongfooted pre-emptive bulls by keeping rates unchanged at 0.25%. This has seen USD/CAD trade back above its 200-day eMA and formed a bullish outside day and likely swing low at 1.2560. And it may have closed much higher were it not for oil prices hitting new highs. WTI futures touched $88 for the first time since October 2014.

NZ quarterly inflation softened in Q4

New Zealand’s inflation came roughly in line with expectations in Q4. The quarterly read softened to 1.4% from 2.2%, although this was slightly above the 1.3% expected. The annual rate came in hotter than the 5.7% forecast, up from 4.9% to 5.9%. As things stand the 6-month OIS (overnight index swap) has already fully priced in two more hikes and we doubt these numbers will diminish the odds of suck hikes, especially now the Fed is hawkish. There was little reaction from NZD crosses as the baulk of volatility presented itself following the FOMC meeting. NZD/USD remains below key resistance around 0.6700 after its downside break from a rising channel last week. 

ASX 200: Market internals

ASX 200: 6961.6 (-2.49%), 25 January 2022

• Real Estate (-3%) was the strongest sector and Information Technology (-3.23%) was the weakest
• 11 out of the 11 sectors closed lower
• 6 out of the 11 sectors outperformed the index
• 188 (94.00%) stocks advanced, 9 (4.50%) stocks declined

Outperformers:

• +7.07% - A2 Milk Company Ltd (A2M.AX)
• +1.41% - Summerset Group Holdings Ltd (SNZ.AX)
• +1.15% - Eagers Automotive Ltd (APE.AX)

Underperformers:

• -9.59% - AVZ Minerals Ltd (AVZ.AX)
• -9.77% - Chalice Mining Ltd (CHN.AX)
• -9.93% - Liontown Resources Ltd (LTR.AX)

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