Dow Jones & Nasdaq 100 Hold Gains Amid Yen Intervention Risks

US stock futures steadied during the Asian session on Friday, November 21, partially recovering the previous day’s losses. However, the gains through the morning session were modest. The release of the September US jobs report failed to revive bets on a December Fed rate cut, leaving US equity futures deep in the red for November.

Concerns about AI stock valuations resurfaced just one day after Nvidia’s earnings, with markets unable to shake the bearish sentiment. US stock futures remained exposed to a potential reversal of early gains, with key US data, Fed speakers, and the rising risk of a yen intervention in play.

USD/JPY Hits 10-Month High, Raising Intervention Risk

Stronger-than-expected nonfarm payrolls sent USD/JPY to a 10-month high of 157.893 on Thursday, November 20. However, rising unemployment and resilient year-on-year wage growth sent mixed signals, fueling uncertainty about a December Fed rate cut.

According to the CME FedWatch Tool, the probability of a December cut rose from 30.1% on November 19 to 35.6% on November 20, but remains below 50.1% on November 13.

Ongoing concerns about Prime Minister Sanae Takaichi’s fiscal stimulus plans, uncertainty about a Bank of Japan rate hike, and fading bets on a Fed rate cut have sent USD/JPY deep into the intervention zone.

While a weaker yen typically fuels carry trades, rising intervention risk could stem flows into risk assets.

Japanese Data Fails to Lift the Yen

Japanese economic data failed to reboot expectations of a December BoJ rate hike, despite inflation edging higher.

Export growth cooled in October, rising 3.6% year-on-year, down from 4.2% in September. Imports increased just 0.7% YoY in October, down sharply from 3.0% in September, signaling weakening domestic demand, potentially weighed down by the weaker yen.

Meanwhile, Japan’s services sector showed resilience in November, adding to the uncertainty over the BoJ’s policy stance. The S&P Global Services PMI remained at 53.1 in November. Crucially, price pressures intensified, with higher wages contributing to an upswing in selling prices.

Service sector data and inflation figures support a December BoJ rate hike. However, Japan’s third-quarter economic contraction has fueled uncertainty as markets consider a looming fiscal stimulus package to bolster the economy.

According to Reuters’ November poll, 53% of economists, or 43 of 81, expected the BoJ to raise interest rates in December. Meanwhile, all 69 economists expected interest rates to be at least 0.7% by March.

Rising bets on a December BoJ rate hike and renewed hopes for a December Fed rate cut could send USD/JPY sharply lower. A stronger yen may trigger carry trade unwinds, exposing US stock futures to the risk of further losses.

On July 31, 2024, the BoJ cut purchases of Japanese Government Bonds (JGBs) and unexpectedly raised interest rates, sending USD/JPY crashing below 140. The Nasdaq 100 E-mini Futures slid from 19,648 on July 31 to 17,351 on August 5 as the stronger yen triggered a carry trade unwind. Traders should closely monitor USD/JPY trends, given the events from 2024.

US Stock Futures: Services PMI and the Fed in Focus

Futures advanced during the Asian session. The Dow Jones E-mini climbed 201 points, the Nasdaq 100 E-mini gained 77 points, while the S&P 500 E-mini rose 79 points.

Later on Friday, the S&P Global US Services PMI will provide insights into the US economy, the labor market, and inflation. Economists expect the Services PMI to slip from 54.8 in October to 54.6 in November.

A modest decline would signal a resilient economy, shifting market focus toward key sub-components such as employment and price trends. With the Fed focused on inflation, price trends could be key. Rising prices would support a more hawkish Fed rate path, weighing on risk assets.

However, traders should continue monitoring FOMC members’ speeches following Thursday’s jobs data. Increasing focus on the labor market and easing concern about inflation could boost bets on a near-term Fed rate hike, potentially sending US equity futures higher.

Key Technical Levels for Dow Jones, Nasdaq 100, and S&P 500

After Thursday’s sell-off, US stock futures traded below their 50-day EMA, signaling a bearish near-term bias. Breaks above or below EMAs signal shifts in momentum.

Near-term trends will hinge on incoming US data and Fed speakers. Key levels to monitor include:

Dow Jones

• Resistance: 50-day EMA (46,656), 47,000, 47,500, and the November 12 record high of 48,528.
• Support: 46,000, and then 45,500.

Nasdaq 100

• Resistance: 24,500, the 50-day EMA (24,907), 26,000, then the October 30 record high of 26,399.
• Support: 24,000, and then 23,500.

S&P 500

• Resistance: the 50-day EMA (6,703), the October 30 record high of 6,954, and then 7,000.
• Support: 6,500, and then 6,250.

Market Outlook: US Data and Fed Set the Tone

Traders should brace for a key Friday session as November US data and Fed speakers take center stage. Given the absence of October inflation and jobs data, the Services PMI will give crucial insights into inflation and the labor market.

FOMC members’ speeches will also fuel speculation about a December Fed rate cut amid rising concerns over sticky inflation.

Follow our live coverage and consult the economic calendar for real-time market updates.