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Market Recap: Post-Fed Jitters, BoJ Meeting Ahead

Market recap: Post-Fed sentiment wavers, US 10-year yields surge. BoJ focus, USD/JPY high. Silver resilient with dip-buying.

  • Market Volatility Post-Fed Market jitters continue after the Federal Reserve meeting, with rising US 10-year Treasury yields adding to uncertainty.
  • BoJ Meeting & USD/JPY High The Bank of Japan (BoJ) meeting takes center stage as USD/JPY hits a new year-to-date high, raising questions about the yen and bond yields.
  • Silver’s Strong Performance Silver prices show resilience, rebounding after a post-Fed dip, signaling the potential for further gains, particularly towards the US$24.50 level.

Market Recap – Post-Fed Jitters, BoJ Meeting Ahead

Market sentiments continue to reel in from the post-Fed meeting jitters (DJIA -1.08%; S&P 500 -1.64%; Nasdaq -1.82%), as the US 10-year Treasury yields rose to another fresh 17-year high near the 4.50% handle amid a high-for-longer rate outlook. Some resilience in the US labor market, reflected from lower-than-expected read out of US jobless claims overnight, provided more room for the Fed to retain its hawkish stance further.

For now, while Fed funds rate futures continue to reflect some doubts that the Fed may not follow through with its final rate hike this year, the timeline for rate cuts is now pushed back to a later timeline of 2H 2024. The US dollar saw slight profit-taking (-0.1%) overnight, while gold prices remain weighed (-1.3%). On the other hand, crude oil prices have managed to eke out slight gains after a short blip from oversold technical conditions.

Key Market Indicators

Major US indices are finding themselves at a critical juncture, with the S&P 500 back to retest essential support at the 4,330 level. Similarly, the Nasdaq 100 faces a crucial test for dip-buyers at the 14,680 level. Rate-sensitive growth sectors have been bearing a greater brunt of the sell-off lately, with the SPDR S&P Semiconductor ETF seemingly breaking below its neckline of a head-and-shoulder formation on the daily chart. If the index turns higher, it could create a bullish divergence on the daily relative strength index (RSI) in the coming days. Still, it must reclaim the neckline resistance for this potential to materialize. Failure to do so may leave the May 2023 low on watch for a retest at the 174.00 level.

Asia Open – BoJ Meeting in Focus

Asian stocks look set for a downbeat open, with Nikkei -1.16%, ASX -1.13%, and KOSPI -0.90% at the time of writing, mainly following through with the negative handover from Wall Street. Today’s key focus will be the Bank of Japan (BoJ) meeting. With the BoJ Governor Kazuo Ueda floating the idea that the central bank could have enough data by year-end to determine whether to end negative rates, markets perceive it as an imminent rate hike into early 2024. Therefore, all eyes will be on the Governor’s communications at the press conference for any signs of hawkishness to validate such a timeline.

The USD/JPY has touched a new year-to-date high this week, with the pair still trading above the 145.00-145.80 range, where the BoJ had intervened with US$19.7 billion of yen-buying back in September 2022. With that, the focus at the upcoming BoJ meeting will also be on how policymakers may address the weak yen and their willingness to tolerate a pull-ahead in the Japanese 10-year bond yields to levels last seen in 2013.

A bearish divergence indicates some near-term exhaustion for now. However, staying above its Ichimoku cloud pattern and various moving averages (MA) still leaves an upward trend intact for the pair. Rising yield differentials between the US and Japanese government bond yields have touched a 10-month high, which may still provide some upward bias for the pair.

Silver Prices Show Resilience

Silver prices have been resilient lately, with a post-Fed sell-off on Thursday met with some dip-buying overnight, as seen by the formation of a bullish pin bar. Thus far, prices have been edging higher upon a retest of upward trendline support in place since August 2022, with higher lows on Moving Average Convergence/Divergence (MACD) pointing to some upward momentum.

Further upside may leave the US$24.50 level on watch for a retest, where the upper edge of its months-long consolidation pattern resides. On the downside, the upward trendline support will be an immediate support to defend by the bulls.

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