Australia 200 - Surges Back Towards Key 5500 Level Again

 |  Includes: AUSE, EWA, FAUS, QAUS
by: Dean Popplewell

By Stuart McPhee

Australia 200 for Thursday, July 3, 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 and relying heavily on support around that level. 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 occurred 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.

Falling iron ore prices have caused the biggest blow out in Australia's trade deficit in 16 months. Australia's trade balance was $1.9 billion in the red in May, nearly triple April's $780 million deficit and much larger than economists had expected. It was the second monthly trade deficit in a row and the largest since January 2013. Exports fell five percent in May, while imports were down one percent, the Australian Bureau of Statistics figures showed. NAB senior economist David de Garis said rising volumes in mining exports were not enough to offset a severe drop in iron ore prices. "Apart from the cyclone season at the turn of the year iron ore shipments just kept carrying on rising," he said. "We know that the fall in prices have been unwinding a lot of the rise in volumes." The iron ore price plunged 12.8 percent in May, starting the month at $US109 a tonne and dropping to $US95.

(Daily chart below)

Australia 200 July 3 at 00:10 GMT 5476 H: 5476 L: 5476

Australia 200 Technical

S3 S2 S1 R1 R2 R3
5400 5300 5000 5550 - -
Click to enlarge

During the hours of the Asian trading session on Thursday, the Australia 200 Index is looking to continue its rally higher and continue its push back to the resistance level at 5500. 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

  • 01:30 AU Building approvals (May)
  • 01:30 AU Retail trade (May)
  • 08:00 EU Composite PMI (Jun)
  • 08:00 EU Services PMI (Jun)
  • 08:30 UK CIPS/Markit Services PMI (Jun)
  • 09:00 EU Retail Trade (May)
  • 11:45 EU ECB Rate Announcement (Jul)
  • 12:30 CA Merchandise Trade (May)
  • 12:30 EU ECB President Draghi gives press conference following interest rate announcement
  • 12:30 US Initial Claims (28/06/2014)
  • 12:30 US Non-farm & Private Payrolls (Jun)
  • 12:30 US Trade Balance (May)
  • 12:30 US Unemployment (Jun)
  • 14:00 US ISM Non-Manufacturing (Jun)

*All release times are GMT