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By Stuart McPhee

Australia 200 for Tuesday, July 1, 2014

Yet again the Australia 200 Index is currently doing its best to rally higher and push back towards the resistance and key level at 5500, although in the early stages of this week it has fallen sharply back towards 5400 again. It has been relying upon support at the 5400 level yet again after falling sharply back in the few days at the start of last week. Over the last few weeks the Australian 200 Index has fallen and broken back down through the key 5500 level towards a four week low around 5400 before consolidating and rallying slightly higher. These two levels have firmly established themselves as significant and any substantial break to either side will most likely be a significant move and be closely monitored. It is quite likely many are sitting on the sidelines waiting for the break before committing as they continue to watch the index move between these two levels. A few weeks at the end of May, it moved back and forth between the two key levels of 5500 and 5550 before the recent fall.

Over the last couple of months the Australia 200 Index has formed an amazing attraction to the key 5500 level as it spent a considerable amount of time trading around it. A couple of weeks ago, the index fell away heavily back down to support around 5400 before returning to the key 5500 level just as quickly, as if gravity had pulled it back. Throughout the last couple of months it has been placing ongoing pressure on the resistance level at 5500 and a few weeks ago it was finally able to move through to a three week high before easing back again to this key level. Several weeks ago it slowly but surely eased away from its multi-year high achieved near 5560 however the following week it fell reasonably sharply and started looking towards the 5400 level which is near where it currently sits. In doing so it returned to back under the key 5500 level which has provided some reasonable resistance over the last few months.

For the bulk of the last few months, the Australia 200 Index has traded roughly between 5300 and 5500 therefore its return to back under 5500 was not surprising. The index has done well over the last couple of months to move steadily higher from support around 5300 up to beyond 5500, forming higher peaks and higher troughs along the way. The support level at 5300 may also be called upon should the index fall lower and will also likely play a role in providing some buffer from any decline. Since February, most of the trading activity has occured between 5400 and 5500 therefore the former level may also be called upon to prop up prices. The index has done very well over the last couple of years moving from below 4000 to its present trading levels around 5500.

Australian inflation has remained benign giving the RBA room to leave rates on hold. The TD Securities/Melbourne Institute monthly inflation gauge remained flat in June following a rise of 0.3 per cent in May and 0.4 per cent in April. Price rises for rent, petrol and tobacco in June were offset by falls in fruit and vegetables, health and recreation and culture. In the year to June, the gauge rose 3.0 per cent. The RBA's target range for inflation is between two and three per cent. But even if inflation pushes beyond three per cent in the June quarter, that won't force a rate hike, TD Securities head of Asia Pacific research Annette Beacher said. "It appears that the RBA, like the US Federal Reserve, is willing to run the risk of higher inflation before it acts, hence why we pushed our call for the first RBA hike to March quarter 2015," Ms Beacher said. "We expect underlying inflation to remain in the top half of the RBA's two-to-three per cent target band and could remain elevated closer to three per cent given the clear signal from our gauge that inflation remains sticky."

(Daily chart below)

Australia 200 July 1 at 00:40 GMT 5408 H: 5408 L: 5408

Australia 200 Technical

S3S2S1R1R2R3
5400530050005550--

During the hours of the Asian trading session on Tuesday, the Australia 200 Index is looking to rally back higher and continue its push back to the resistance level at 5500, however it is presently struggling. For most of this year the Australia 200 Index has moved well from the lower support level at 5000 up to the multi-year highs above 5500 in the last month or so.

Further levels in both directions:

• Below: 5400, 5300 and 5000.

• Above: 5550.

Economic Releases

  • 04:30 AU RBA - Overnight Rate (Jul)
  • 05:00 JP Vehicle Sales (Jun)
  • 07:00 UK Halifax House Price Index (1st-8th) (Jun)
  • 08:00 EU Manufacturing PMI (Jun)
  • 08:30 UK CIPS/Markit Manufacturing PMI (Jun)
  • 09:00 EU Unemployment (May)
  • 13:45 US Manufacturing PMI (Jun)
  • 14:00 US Construction Spending (May)
  • 14:00 US IBD Consumer Optimism (Jul)
  • 14:00 US ISM Manufacturing (Jun)
  • US Vehicle Sales (Jun)

*All release times are GMT

Source: Australia 200 - Reverses And Returns To Support At 5400