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Dow Jones Back to 27,000, Hang Seng Weighed by US-China Tension

Dow Jones Back to 27,000, Hang Seng Weighed by US-China Tension

Margaret Yang, CFA, Strategist

DOW JONES, HANG SENG INDEX, USD/CNH OUTLOOK:

  • Dow Jones climbed 0.62% to 27,005 following upbeat US earnings
  • Hang Seng Index retraced to a key 25,000 support as US-China tension escalated
  • CNH registered a two-day loss of 0.56% as US demanded closure of China’s consulate in Houston

Dow Jones Index Outlook:

The Dow Jones Industrial Average (Dow) stock market benchmark climbed to a six-week high of 27,005 as 2Q US corporate earnings have largely beaten market forecasts. So far, the earnings season has fared quite well, with more than 80% of the major companies announcing better-than-expected results.

Tesla has smashed earnings expectations across the board – revenue was $6.04b versus an estimated $5.40bil, free cash flow at $418m versus estimated losses of $618m, earnings per share (EPS) clocked in at 50 cents against estimated losses of $2.31. This marks the fourth consecutive profitable quarter, paving the way for Tesla to join the S&P 500 index. Its share price advanced 4% in afterhours trade to $ 1,657.

Sector-wise, materials (3.02%), consumer discretionary (1.61%), information technology (+0.91%) and consumer staples (+0.86%) were leading gains in the Dow yesterday. Energy (-1.02%) and financials (-0.89%) were lagging.

Dow Jones Index Sector Performance23-7-2020

Dow Jones Back to 27,000, Hang Seng Weighed by US-China Tension

Source: Bloomberg, Dailyfx

Technically, the Dow Jones Index is riding an ascending trend and moving higher. An immediate support level could be found at 26,300 – 20-Day Simple Moving Average (SMA) and then 26,000 – 50-Day SMA. Immediate resistance can be found at 27,400, the previous high seen in early June. Breaking above 27,400 would open room for more upside towards 27,900 – the 161.8% Fibonacci extension.

Dow Jones IndexDaily Chart

Dow Jones Back to 27,000, Hang Seng Weighed by US-China Tension

Hang Seng Index Outlook:

The Hang Seng Index (HSI) stock market benchmark plunged on Wednesday following the US ordering the closure of China’s Houston consulate. This marks an abrupt escalation of US-China tensions, which have already deteriorated in the past few months on Covid-19 disputes and the Hong Kong Security law.

However, the likelihood for this event to morph into a major diplomatic crisis remains low for now. This is evidenced by a strong US trading session and plunge in the volatility index, the VIX. The Hang Seng may attempt to move higher again once the news is fully digested by the market.

Technically, the index has found some support at 25,000 – the 50% Fibonacci retracement. Breaking below this critical support could lead to further downside towards 24,100 – the 38.2% Fibonacci retracement.

Hang Seng IndexDaily Chart

Dow Jones Back to 27,000, Hang Seng Weighed by US-China Tension

USD/CNH Outlook:

The Offshore Chinese Yuan (CNH) tumbled yesterday following the closer of China’s Houston consulate. The currency has not fallen off a cliff though, and it even strengthened to 7.009 against the greenback from 7.020 this morning. This suggests that the market is not overly concerned about the headline.

Technically, USD/CNH has found strong support at 6.970 – the 76.4% Fibonacci retracement. Resistance can be found at around 7.106 – the 61.8% Fibonacci retracement.

USD/CNHDaily Chart

Dow Jones Back to 27,000, Hang Seng Weighed by US-China Tension

--- Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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