Yen and Swiss Franc ended as the weakest ones last week as global stock markets ended higher. There were some jitters in risk sentiments after US announced to move on with tariffs on additional USD 200B in China imports, which come effective as soon as in September. But investors were quickly relieved after China’s refrained response. While China still pledged to retaliate, there is no far no detail on the plan, not even leaked. On the other hand, while Dollar ended as the strongest one, the lack of further escalation in trade war limited its strength. Indeed, the late pull-back of the greenback on Friday argues that it’s not ready to resume recent up trend yet. Australian Dollar ended as the second strongest as particularly lifted by rebound in Asian markets. Sterling survived resignation of two ministers and Trump’s blasting of the softer Brexit plan, ended as the third strongest. Canadian Dollar was just mixed as the lift by hawkish BoC rate hike was offset by the sharp fall in oil price.
Going through all the noises, the main development last week was the weakness in Yen and Franc. That was primarily built on strength in global equities. In particular, NASDAQ hit record highs as it resumed the larger up trend. Near term strength in equities is anticipated. There could be some more positive news as European Commission President Jean-Claude Juncker visits China and Japan on Monday and Tuesday. China is known to look into EU to expand partnership on trade and investment, and on other issues like climate change. Juncker will also sign an Economic Partnership Agreement with Japan during the visit.
However, it should be noted that the risks of trade war is just temporarily taking a back seat and a lot of development is happening. The section 232 investigation in auto tariffs is undergoing and could be completed in weeks. That will be a huge blow to European and North American car industry. And China could be ready to step up with its rhetoric again once stocks rebounded to a level that’s comfortable for investors to see another selloff. So, for now, we don’t anticipate risk appetite to stay long.
DOW rebounded as medium term consolidation extends
Technically, DOW’s strong rebound last week suggested that fall from 25402.83 has completed at 23997.21 already. That temporarily removed the risk of further decline through 23344.52 support. Instead, favors are now on further rebound back to 25402.83, and possibly above to 25800.35. But after all, recent price actions are corrective looking. And even the rebound from 23997.21 is not impulsive looking. Hence, we’d hold on to the view that consolidation pattern from 26616.71 is not completed yet and there will be another fall through 23344.52 before up trend resumption.
NASDAQ hit record high with convincing momentum
On the other hand, the near term upside momentum in NASDAQ is much more convincing. And that’s how an up trend resumption should look like. Further rise should be seen to 61.8% projection of 6991.14 to 7806.60 from 7419.56 at 7923.51. Nonetheless, considering bearish divergence in daily MACD, we’ll pay attention to loss of momentum above 7923.51 and at it approaches 8000 handle.
DAX rebound capped by auto tariff risks
German DAX closed the week just up 0.36% and it struggled to break through 55 day MACD so far. Near term outlook is neutral as the index is bounded in converging range since 13596.89. While a break of last week’s high at 12837.79 could extend the rebound from 12104.41. Strong resistance will likely be seen below trend line resistance (now at 12583.79). On the downside, a break below last week’s low at 12398.47 would likely resume the fall from 13204.31 through 12104.41 support. The development will very much depends on how the US auto tariffs play out.
Nikkei showed promsing momentum
In Asia, the technical development in Nikkei is very promising. The strong break of 55 day EMA suggests that pull back from 23050.39 has completed with three waves down to 21462.94 already. The rebound from 20347.49 looks set to resume. A test on 23050.39 resistance would likely be seen this week. Break will then pave the way to 100% projection of 20347.49 to 23050.39 from 21462.94 at 24165.84, which is close to 24129.34, later in the month on in August. For now, we’re not anticipate a strong break of this resistance level yet. And, remember that Japan got no exemptions from US steel tariffs. The upcoming auto tariffs will also have negative impacts on Japanese car makers. So, the momentum above 23050.39 will be closely watched.
China SSE survived tariff threats
The China Shanghai SSE survived Trump’s tariff threat on tariffs. After initial set back it rebounded strongly to close at 2831.18. The development reinforced our view that the support zone between 2016 low at 2638.3 and 2700 psychological level is a very strong one that was defended. For now, further rise is in favor through 2848.37 resistance. In the case, we’d likely see SSE have a go at 55 day EMA (now at 2979.01). But there is no prospect of regaining 3000 handle. Indeed, the Chinese government could start to feel comfortable to harden its trade rhetoric again above 2900. The index should revisit 2638/2700 again before turning around.