Market activity this week will likely be dominated by US housing data in the first half and the US FOMC statement

Market activity this week will likely be dominated by US housing data in the first half and the US FOMC statement on Thursday. The Federal Reserve is largely expected to maintain its tilt towards inflation risks as growth seems to be escalating in the midst of a weakening housing sector.

On this note, existing home sales data will be released first in overnight markets. Although consensus estimates suggest this reading to be flat, the impact of recent rises in mortgage rates will only appear on next month’s register since the data series is latent.

Given the correlation between the housing market and consumers, the knock-on impact will determine investor sentiment for capital markets.

For the sixth time this year, the Straits Times Index bounced off the top of its upward trend channel after hitting an all-time high of 3,652 on June 20.

We foresee that if the economic data surprises on the negative side, there would be a pullback towards the mid-point of the 150-point trading band where the 20-day moving average is situated. This upper limit of the trend channel has proven to be very resilient and is unlikely to be breached any time soon.

Daily stochastics and 14-day RSI are retreating from overbought territory and are pointing towards a market consolidation in the near term. Downside risk is at 3,500, where the 50-day moving average and the lower end of the trend channel coincide.

Source: The Business Times, 26 June 2007