It was a bearish Wednesday morning trading session for the Hong Kong equities as investors turned their entire focus towards the US CPI data, which has the power to influence the Fed’s decision on the monetary policy path. The Hang Seng Index Futures (HKEX: HSI) declined 0.37% during the morning session, adding to the 2.33% decline in the previous trading session.

Market bets of a further rate hike weighed on the equities as investors are mindful of the effect of hotter-than-expected inflation figures on the Federal Reserve’s decision on further rate hikes and the overall economic outlook. Thus, the market sentiment and bets on the CPI report will continue to drive the index futures during the session.

Technical

The 4H chart shows that the index futures are trading within a wide ascending channel as the bulls look to push the price higher under a very volatile market that impacts the sensitive sentiment towards the equity market. With the index futures trading within a range formed by the 50% and 61.80% Fibonacci retracement level, the reaction of the market to the inflation data could determine the direction of the futures.

Therefore, the bears would likely test the 19501 support level if the index futures could sustain a break below the golden ratio. The fall of the 19501 support level could trigger a breakout towards the major support level at 18849. However, a break above the 50% Fibonacci retracement level would boost the bulls’ run towards the 20035 resistance level. A sustained break above 20035 would bring the 20256 resistance level and the 23.60% Fibonacci retracement level firmly into play.

Summary

The market is firmly focused on the US CPI data due to the influence it could have on the Fed’s decision on further rate hikes, and the market’s reaction would determine the direction of the index futures in the short term. Therefore, traders should closely watch the 50% and 61.80% Fibonacci retracement levels, as a breakout on either level could dictate the direction of the index futures in the short term.

Sources: TradingView, Reuters.

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