Asian Open: VIX rises to a 4-week high, AU employment at 11:30

Wednesday US cash market close:

• The Dow Jones Industrial fell -534.34 points (-1.51%) to close at 35,028.65
• The S&P 500 index fell -44.35 points (-0.97%) to close at 4,532.76
• The Nasdaq 100 index fell -162.916 points (-1.07%) to close at 15,047.84

Asian futures:

• Australia's ASX 200 futures are up 30 points (0.41%), the cash market is currently estimated to open at 7,362.50
• Japan's Nikkei 225 futures are up 60 points (0.22%), the cash market is currently estimated to open at 27,527.23
• Hong Kong's Hang Seng futures are up 244 points (1.01%), the cash market is currently estimated to open at 24,371.85
• China's A50 Index futures are up 19 points (0.12%), the cash market is currently estimated to open at 15,249.69

Bond yields eased, dollar bulls took a step back

Selling across bond markets saw yields ease form their highs and break a 3-day winning streak. The US10-year reached a high of 1.9% before closing -21 bps lower, whilst the 2-year reached 1.077% before effectively closing flat. US indices all closed in the red as they extended their declines with the Nasdaq falling over 1%. The S&P 500 was down just under 1% and the VIX rose to a 19-day high. Short-term volatility is also rising relative to longer-term volatility as the 30-day VIX is approaching levels similar to VIX futures contract 6-months out. It’s not in backwardation yet but volatility will likely spike if it does (this is where near-term VIX is higher than future VIX contracts).

Direction for USD/JPY remains on a knives edge

USD/JPY remains beneath trend support and prices breached the bearish pinbar low to warn of a near-term reversal. Yet prices also holding above key support around 114.26 which is a bullish hammer high and 50-day eMA. Should prices break below 114 then we need to take trend resistance a bit more seriously, otherwise the bias remains for an eventual upside break of trend resistance / 115 as USD/JPY tracks yield differentials higher. Take note that Japan’s trade data is scheduled for 10:50 AEDT.

AUD firms ahead of today’s employment report

The softening of the dollar saw AUD/USD as the strongest major, but the Aussie also rose against all of its major peers. AUD/CAD rose from key support to delay it potential break of the December low. Over the near-term the March 2020 highs could either be a bullish target or area for bears to fade into. 82 remains a key level for AUD/JPY and price action from the Jan high appears to be corrective. We therefore suspect it is building a base above 82 and looking for evidence is bullish trend from the

December low resumed. Employment data is scheduled for 11:30 AEDT, although as Tony Sycamore noted, the report doesn’t capture the pr-Omicron surge (which will not be revealed until the Jan and Feb reports). Unemployment is expected to fall to 4.5% and 60k jobs are expected to have been printed in December.

Clear break of trend support on the ASX 200

The ASX 200 fell to a 3-week low yesterday and cleared several levels of support, including the December trendline, January 6^th low and 61.8% Fibonacci level. We therefore prefer to fade into rallies whilst prices remain below the monthly pivot point. Next major support is the 7257 low with 7300 making a likely interim support level.

ASX 200: 7332.5 (-1.03%), 19 January 2022

• Energy (0.59%) was the strongest sector and Information Technology (-2.56%) was the weakest
• 2 out of the 11 sectors closed higher
• 9 out of the 11 sectors closed lower
• 7 out of the 11 sectors outperformed the index
• 140 (70.00%) stocks advanced, 49 (24.50%) stocks declined

Outperformers:

• +2.97% - Harvey Norman Holdings Ltd (HVN.AX)
• +2.83% - Premier Investments Ltd (PMV.AX)
• +2.54% - Virgin Money UK PLC (VUK.AX)

Underperformers:

• ·-16.1% - Megaport Ltd (MP1.AX)
• ·-9.7% - Novonix Ltd (NVX.AX)
• ·-6.8% - Allkem Ltd (AKE.AX)

Up Next (Times in AEDT)

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