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Dow Jones May Lead Hang Seng, Nikkei 225 lower Post ECB Disappointment

DOW JONES, HANG SENG, NIKKEI 225 INDEX OUTLOOK:

  • Dow Jones retreated 1.45%, with over 90% of its components falling; US core inflation in focus
  • Hong Kong’s Hang Seng Index (HSI) may open lower, testing a key support at 24,100
  • Japan’s Nikkei 225 index stayed composed below a key resistance at 23,300 as USD/JPY ranged

Dow Jones Index Outlook:

The Dow Jones Industrial Average (Dow) let go earlier gains and ended 1.45% lower. Prior to Wall Street open, the ECB set a neutral tone on its monetary policy, keeping its policy rate unchanged. ECB Chairwoman Christine Lagarde didn’t sound too alarmed about the currency’s recent strength. The euro let go earlier gains and swung lower as sentiment turned sour. The US Dollar index gained, suggesting that market participants were prioritizing safety.

Investors are perhaps disappointed, as many have expected further ECB easing measures to be announced amid Covdi-19 complications and the recent fall in Eurozone inflation.

On the macro front, traders are eyeing Friday’s US inflation data for clues about Fed’s future policy guidance, although the Fed Chairman Jerome Powell said in the last meeting that the central bank will allow inflation to overshoot before stabilizing at a long-term goal at 2%. Market foresees a 1.6% annualized core CPI rate in August. A large deviation from expectations may bring some impact on the US Dollar, gold, crude oil and stocks.

US Core CPI YoY – Aug 2020

Dow Jones May Lead Hang Seng, Nikkei 225 lower Post ECB Disappointment

Source: Bloomberg, DailyFX

Sector wise, energy (-3.67%), information technology (-2.28%) and consumer discretionary (-1.77%) were among the worst performers last night. All nine sectors ended lower, with a dismal 3.3% of the index components closed higher.

Dow Jones Sector performance 10-9-2020

Dow Jones May Lead Hang Seng, Nikkei 225 lower Post ECB Disappointment

Source: Bloomberg, DailyFX

Technically,the Dow has entered into a bearish trend recently, hitting the lower bound of its Bollinger Band. An immediate support level can be found at 27,500 – the 50-Day Simple Moving Average (SMA). Breaking this level will likely open the room for further downside towards the 23.6% Fibonacci retracement level at 26,600.

Dow Jones IndexDaily Chart

Dow Jones May Lead Hang Seng, Nikkei 225 lower Post ECB Disappointment

Hang Seng Index Outlook:

Hong Kong’s Hang Seng Index (HSI) may fall following a tepid US trading session, as the ECB was reluctant to ease more last night. Sector-wise, finance (-1.11%) was the worst performing sector yesterday, explaining 78% of the index losses. Technology shares slightly outperformed yesterday but may start to feel the selling pressure today following the US tech rout.

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Hang Seng Index Sector performance 10-9-2020

Dow Jones May Lead Hang Seng, Nikkei 225 lower Post ECB Disappointment

Technically, the HSI has broken down the upward trend as indicated in the chart below. It has since entered a bearish trend and may test a key support level at 24,100 – the 38.2% Fibonacci retracement. The MACD indicator remains in a bearish setup and trends lower, suggesting the near term momentum may be biased towards the downside.

Hang Seng Index Daily Chart

Dow Jones May Lead Hang Seng, Nikkei 225 lower Post ECB Disappointment

Nikkei 225 Index Outlook:

Japan’s Nikkei 225 index remained composed as USD/JPY was little moved despite surging Euro volatility last night. Demand for safety may keep the Japanese Yen on bid, which is usually not a good sign for the Japanese stock market.

Technically, the Nikkei 225 index stock benchmark is testing a key resistance level at 23,300. It has formed an “Ascending Triangle” in its daily chart, waiting for positive catalysts for a meaningful breakthrough.

Nikkei 225 Index – Daily Chart

Dow Jones May Lead Hang Seng, Nikkei 225 lower Post ECB Disappointment

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter