AI jitters shake the markets

JPY about to end the week in the greens

Maybe the most characteristic move in the FX market was the strengthening of the JPY yesterday against the USD, GBP and EUR, in a sign of broader strength of the Japanese currency. Analysts highlight a possible flight to safety by investors caused by worries about the soundness of AI trades as the main factor behind the strengthening of JPY. The carry-trade tendencies seem to remain present, while Japan’s September CPI rates accelerated beyond the BoJ’s 2% y/y inflation target rate, which may enhance the BoJ’s hawkishness.

US stock markets correct lower as AI worries weigh

US stock markets moved decisively lower yesterday. On a fundamental level, worries for AI spending tended to weigh on the tech sector. It’s characteristic that Meta Platforms slipped about 7%, while Advanced Micro Devices fell more than 8%, while Micron Technology dropped 6% and Nvidia 4%. On a fundamental level, the heavily indebted sector is expected to be challenged in a high interest environment and investors are increasingly worried about the high level of investment necessary. Should the market worries for inflationary pressures in the US economy and AI investments be enhanced we may see the US equities slipping.

Oil prices edge higher

Oil prices continued to climb higher with market worries for the supply side of the international oil market intensifying. Houthi attacks on Saudi Arabia, maintain worries for the Kingdom’s ability to deliver the necessary oil supplies. The inability of Saudi Arabia and the US to put the Houthi rebels under control, undermines the credibility of Saudi Arabia as an oil producer and investment destination. If we see tensions in the region and attacks on oil infrastructure persisting, we may see oil prices rising further. 

Gold’s price has bearish tendencies

Gold’s price presents some bearish tendencies. On a fundamental level, the rise of oil prices tends to enhance market expectations for inflationary pressures to remain high, in turn allow for market expectations for the Fed to tighten its monetary policy, thus weighing on gold’s price. It’s characteristic that even the wide drop of US bond yields did not create flows for gold, nor did AI related safe haven inflows support gold’s price.

Other highlights for today

In today’s American session, we get Canada’s retail sales for August, and the preliminary US S&P Global PMI figures for October, as well as the UoM consumer sentiment also for October. On Monday’s European session, we get Germany’s Ifo indicators and UK’s CBI Distributive Trades, both for October.

Charts to keep an eye out

USD/JPY dropped yesterday, breaking the 157.50 (R1) support line, now turned to resistance. As the pair’s price action has broken the lower boundary of its past sideways motion has been broken, we switch our sideways motion bias in favour of a bearish outlook for the pair, while the drop of the RSI indicator tends to support our outlook. Should the bears maintain control, USD/JPY could aim if not reach the 155.00(S1) support base.  Should the bulls take the lead, USD/JPY may break the 157.50 (R1) resistance line and start aiming for the 160.50 (R2) resistance level.

Nasdaq dropped yesterday after hitting a ceiling on the 29675 (R1) resistance line. We maintain a bearish outlook for the index as long as the downward trendline guiding it remains intact. Should the bears remain in charge, we may see Nasdaq reaching if not breaching the 28200 (S1) support line and start aiming for the 87.55 (S2) support base. Should the bulls take over, we may see Nasdaq breaking the prementioned downward trendline, signalling an interruption of the downward motion and continue to break the 29675  (R1) resistance line, and start aiming for the 30770 (R2) resistance level.

USD/JPY daily chart

• Support: 155.00 (S1), 152.10 (S2), 149.40 (S3).
• Resistance: 157.50 (R1), 160.50 (R2), 162.80 (R3). 

US 100 cash daily chart

• Support: 28200 (S1), 26870 (S2), 25375 (S3).
• Resistance: 29675 (R1), 30770 (R2), 32500 (R3).