Wall Street seemed to have responded very well to China's stimulus measures. DJIA surged 619.07 pts, or 3.95%, to close at 16285.51. S&P 500 rose 72.9 pts, or 3.90% to close at 1940.51. That's the biggest percentage gain in the US markets in four years. Asian markets follow with Nikkei trading up more than 250 pts, or 1.4% at the time of writing while Hong Kong HSI rises over 500 pts or 2.5%. However, China's Shanghai composite is mildly up by 1.5% and is still struggling to reclaim 3000 level. In the currency markets, dollar rebounded strongly overnight and stays firm. The greenback is now the second strongest major currency this week next to Japanese yen. Commodity currencies continue to consolidate but stay the weakest. European majors are notably weaker after initial surge earlier in the week.
The rebound in stock isn't much of a surprise to us. As we mentioned yesterday, DJIA was close to medium term fibonacci level of 10404.49 to 18351.36 at 15315.65. Some support should be seen around that level and the index should turn into sideway consolidation. The pattern from 15370.33 low so far is looking like a consolidation and is limited below 38.2% retracement of 18351.36 to 15370.33 at 16509.08. We'd maintain that consolidation would extend in near term and we're mildly favoring that fall from 18351.36 is correction whole up trend from 2009 low of 6169.95. And that means, the index would drop further to key cluster fibonacci zone of 13440/13814 at a later stage. In case of further rebound, strong resistance would be seen around 50% retracement at 16860.84. But we'll look the the strength of the coming near term rebound to assess the chance of the bearish case.
New York Fed's William Dudley suggested that a rate hike in September appeared less likely now. According to him, "the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago". He noted that "normalization could become more compelling by the time of the meeting as we get additional information on how the US economy is performing, and more information on international and financial market developments". Dudley, however, remained hopeful about beginning the tightening cycle this year. He hoped that "we can raise interest rates this year, because that would be a sign that the US economic outlook is good and that we're actually on track to achieve our dual mandate objective".
The fall in dollar index extended lower this week as expected and breached 93.13 support before rebounding. The index drew some support above 38.2% retracement of 78.90 to 100.39 at 92.18 and recovered. At this point, the fall from 100.39 is still viewed as a corrective pattern. And in case of another fall, we'd expect strong support between 92.18 and 100% projection of 100.39 to 93.13 from 98.33 at 91.07 to contain downside. Meanwhile, break of 95.92 resistance will argue that such correction could have completed and will bring stronger rise back to 98.33/100.39 resistance zone.
On the data front, main focus is US today where GDP revision, jobless claims and pending home sales will be released. Eurozone will release M3 money supply.