The Hang Seng Index Futures (HKEX: HSI) are experiencing significant downward pressure due to ongoing concerns surrounding the US debt ceiling, which have continued to wreak havoc on Asian equities. With three consecutive days of losses, the index has reached its lowest level since late November. The index futures have slumped to a sizeable 3.6% for the week as the investors look to hedge their positions against a potential default from the world’s largest economy.

In addition to the debt ceiling, investors are also worried about the rising inflation in the US. Inflation is at a 40-year high, and the Federal Reserve is expected to raise interest rates in an effort to cool the economy. This could lead to a slowdown in economic growth, which would also hurt the equities market.

Technical

The 4H chart shows that the index futures have formed a descending channel as the bears continue to drag the price action to levels last experienced months ago. The bears could be confident in the continuation of the momentum, with the price action firmly below the 50-day moving average (50-EMA). Therefore, the bears would look to test the support level at 18505, with the support level below, at the 18133 price level, acting as the next level of significance.

However, the bulls could target the 23.60% Fibonacci retracement for confirmation of bullish momentum. The fall of the 23.60% Fibonacci retracement would bring the 19377 and 19774 resistance levels into play, with the 50-EMA acting as a significant barrier between the levels.

Summary

Traders should closely monitor developments surrounding the US debt ceiling negotiations as they will likely have a significant impact on the Hang Seng Index. A lack of resolution could continue to push the index lower, with the 18505 support level acting as the initial target for the bears.

Sources: TradingView, Asia Financial.

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