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Markets returns to a cautious mode ahead of the Fed and BOJ meetings

By Margaret Yang, CMC Markets

Equities – Asian equities closed lower on Friday, ending a three-week rally. A cautious mood is surrounding the market, as nobody wants to take too much risk ahead of the FOMC and BOJ meetings this week.

A stronger dollar and softened commodity prices are further reasons behind the selling. Crude oil prices fell 5% in two days, pressuring Singapore’s O&G names such as SembCorp Industry (-2%) and SembCorp Marine (-2.3%).

The Hang Seng Index lost 1.2% after resuming trading on Friday, while Chinese and Taiwanese markets remained close for the Tuen Ng festival. The S&P 500 index fell from a 10-month high to 2,096 points, dragged by the energy (-2.41%) and financials (-1.66%) sectors.

FX – The Dollar Index rebounded for a second day to 94.72, meaning that the US dollar has strengthened against its major peers such as the euro and sterling.

USD/JPY traded lower at the 106.44 area this morning. A game changer this week could be the BOJ meeting on 15-16 June, in which the policy makers will announce their monetary-base and interest-rate decisions. Some expectations include further expansion of the monetary stimulus, even though the yen is trading near its 19-month high.

Commodities – The WTI crude oil price tumbled 3.3% on Friday, retracing further from an eight-month high to the $48.50 area this morning. The stronger US dollar and profit-taking after oil hit an eight-month high both sent it lower. The immediate support and resistance levels are at $48.00 and $49.60 respectively.

Gold prices rallied to $1,278 before softening to $1,273 this morning. The immediate support and resistance levels are at $1,240 and $1,286 respectively. Silver, on the other hand, has consolidated near $17.20. In the near term, demand for safe-haven assets - due to rising uncertainty - is likely to provide support for gold and silver prices.

USD/JPY

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Margaret Yang Yan, CFA, is a market analyst for CMC Markets Singapore.