Market Brief: Nikkei 225, Asian Stocks Steady After Massive Sell-Off. Is This A Dead Cat Bounce?

Nikkei 225, Shanghai Composite, and Hang Seng Index Recoup Losses

After a massive sell-off triggered by combined concerns of the coronavirus outbreak and Saudi Arabia’s oil price war, Asian stocks stabilized today.The Nikkei 225 recovered some of its losses from yesterday when it finished today’s trading 0.85% or 168.36 points higher at 19,866.90. Also in the green was the Shanghai Composite Index with a 1.82% or 53.471 point-profit at 2,996.762. Meanwhile, the Hang Seng Index is trading higher by 1.70% or 425.0 points at 25,464.5.

US Tax Cuts to Boost Sentiment?

According to some reports, today’s renewed mood in the market is partly driven by news of tax cuts in the US. It is said that US President Donald Trump will ask Congress for tax relief to help stimulate the economy which has been affected by the coronavirus outbreak.

However, there have not been any tangible positive developments on the two factors which triggered yesterday’s sell-off. While the number of new coronavirus cases has been growing at a slower pace in China, it has continued to spread rapidly elsewhere in the world. Italy is on lockdown because of it. The number of new cases in the US jumped more than 700 on Monday, more than 150 from Sunday. Even US President Donald Trump is suspected to be infected after he and his staff came in contact with a person who was later confirmed with the coronavirus.

In the Middle East, there has been no new statement from Saudi Arabia indicating that it will back down its plans of hiking oil production.

What is a Dead Cat Bounce?

Consequently, it’s difficult to see today’s price action as a sign of recovery. Instead, it could be nothing more than what is called a dead cat bounce. This is the term used to describe a momentary recovery in stock prices after a drastic fall. It is often caused by speculators trying to buy low or some investors covering their positions.

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AUDNZD Price Analysis

Yesterday’s wave of risk aversion benefited sellers on AUDNZD. As I mentioned in my earlier post, the resilience on the New Zealand dollar could be partly driven by the fact that the RBNZ has not yet announced easing measures. Therefore, this makes the central bank in a less dovish position compared to its other counterparts, like the RBA, which have already slashed rats.

On the 4-hour time frame, we can see that AUDNZD has broken through support at the rising trend line (from connecting the lows of January 27, January 28, January 31, February 27, February 28, and March 3). As of this writing, the currency pair is testing this price at 1.0425 for resistance along with other indicators. The 100 SMA coincides with this area along with the 38.2% Fib level (when you draw from the high of March 4 to yesterday’s low). If there are enough sellers in the market, we could soon see AUDNZD fall to near-term support at 1.0360. It may even fall even lower to its January lows at 1.0310.

On the other hand, a strong bullish close above 1.0425 could mean that buyers are still in control. AUDNZD may then test its month-to-date highs at 1.0530 for resistance.

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