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By Stuart McPhee

Australia 200 for Monday, July 7, 2014

We have seen this picture before as the Australia 200 Index makes a solid push towards the key 5500 level in an attempt to break through and continue higher. The big question now will be whether the Australia 200 Index can maintain its break through the key resistance level at 5500 having enjoyed a solid week last week. 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 last week it fell sharply back towards 5400 again and relied heavily on support around that level. Several weeks ago the Australian 200 Index fell and broke back down through the key 5500 level towards a four week low around 5400 before consolidating and resting on support there. 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.

Back 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.

The Australian dollar, which appeared to be on course for a return to parity with the U.S. dollar just days ago, is set to end the year below $0.90, say strategists. Reserve Bank of Australia (NYSE:RBA) governor Glenn Stevens is partially responsible. His comment Thursday that the Aussie is "overvalued, and not just by a few cents," sent the currency as low as $0.9329. It edged up slightly to $0.9353 on Friday. "The RBA is going to continue to jawbone the currency lower. If you've got a central bank talking down the currency, this is likely to discourage foreign investors from investing in Australian assets," David Forrester, currency strategist at Macquarie told CNBC. He sees the currency falling to $0.88 by year-end.

(Daily chart below)

Australia 200 July 7 at 00:50 GMT 5531 H: 5531 L: 5531

Australia 200 Technical

S3S2S1R1R2R3
5400530050005550--

During the hours of the Asian trading session on Monday, 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.

Economic Releases

  • 00:30 AU TD-MI Inflation Gauge (Jun)
  • 01:30 AU ANZ Job Ads (Jun)
  • 05:00 JP Leading indicator (Prelim.) (May)
  • 08:30 EU Sentix Indicator (Jul)
  • 12:30 CA Building permits (May)
  • 14:00 CA Ivey PMI (Jun)

*All release times are GMT

Source: Australia 200 - Approaching Multi-Year High Above 5500