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STI support should hold; chart pattern of risk-free rates remains weak

Goola Warden
Goola Warden • 2 min read
STI support should hold; chart pattern of risk-free rates remains weak
STI's support area holds during consolidation; 10-year yield chart pattern remains weak
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The Straits Times Index ended the week of June 16-21 at 3,308, up 11 points week-on-week. The consolidation of the past 13 days, comprised mainly of black candles punctuated by a couple of dojis, has not quite run its course. Directional movement indicators are neutral, with ADX at 12 and falling. The lower the ADX level, the more likely the index may drift. And, since the DIs are neutral, the index would most probably drift sideways, within a relatively narrow range.

Support has been established at around 3,300. This coupled with the rising 50-day moving average at 3,286 may be sufficient to limit declines. If the 3,300 level holds, the eventual upside of 3,450 remains valid.

The 10-year US Treasury Yield chart continues to look like it may ease. Although the 4.20% support level has held, the 10-year yield is hovering slightly above this level at 4.23%. The yield’s quarterly momentum appears poised to break below its equilibrium line. Additionally, potential weakness could materialise as the 100- and 200-day moving averages have made a negative cross at 4.34%, a level that should be viewed as a resistance area. This weakness may provide the 10-year yield with the potential to break below 4.2% at some point, and that could materialise as we move into 3Q2024.

On the news front, on June 26, the Federal Reserve is set to release the results of stress tests for US banks. The stress test assesses whether US banks are sufficiently capitalised to absorb losses during stressful conditions while meeting obligations to creditors and counterparties, and continuing to be able to lend to households and businesses.

According to UOB Global Economic and Market Research, the test covers 32 lenders with US$100 billion or more in assets. One of the tests includes a hypothetical scenario comprising a severe global recession with stress in the commercial and residential real estate markets.

See also: REIT index breaks out of a base formation as risk-free rates flounder


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