Australia 200 for Friday, July 4, 2014
The big question now will be whether the Australia 200 Index can maintain its break through the key resistance level at 5500. There has not been a doubt on whether it will return there or not as it has moved back and forth between 5400 and 5500 for the last few months. In the early stages of this week, it fell sharply back towards 5400 again and relied heavily on support around that level. 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.
Australia's economic rebalancing away from the mining boom is still in its early stages, a top central banker said on Thursday, while warning investors they were underestimating the risk of sharp fall in the local dollar. In a wide-ranging speech, Reserve Bank of Australia (RBA) Governor Glenn Stevens said there had not been any thought of raising interest rates, and implied markets were right to price in a long period of steady policy. Stevens also welcomed the recent slowdown in the growth of house prices and hoped it would persist for the next year or so. Stevens went on to say Investors are under-estimating the probability of a "significant fall" in the Australian dollar. "Most measurements would say it is overvalued, and not just by a few cents," Stevens said in the text of a speech to be delivered in Hobart. "We think that investors are under-estimating the likelihood of a significant fall in the Australian dollar at some point." Stevens today reiterated that the currency remained high by historical standards and said it was "uncomfortable" for sectors exposed to trade.
(Daily chart below)
Australia 200 July 4 at 00:40 GMT 5524 H: 5524 L: 5524
Australia 200 Technical
During the hours of the Asian trading session on Friday, the Australia 200 Index will be looking to continue its rally higher and push through and maintain its break through 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.
- Nothing to report - there is not much happening with releases due to the 4th July U.S. holiday
*All release times are GMT