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By Stuart McPhee

Australia 200 for Friday, August 8, 2014

After being on quite a roll for several weeks, the Australian 200 Index has fallen sharply over the last week or so returning back to more familiar territory between the 5400 and 5500 levels, and trading at a three week low in the process below 5450. The solid move higher a couple of weeks ago saw it move strongly up through both the 5500 and 5550 levels to reach a new six year high around 5620 earlier last week. In recent weeks it has discovered a new key level to deal with after running into a short term resistance level at 5550, which in the last few days has provided some solid support. It reversed strongly a few weeks ago bringing it back down to almost touch the 5400 level before rallying back higher again. At the beginning of June 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 for an extended period. 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 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.

A surprising jump in Australia's unemployment rate has poured cold water on any expectations of a rate hike in the foreseeable future. Australia's jobless rate jumped to 6.4 per cent in July, from 6.0 per cent in June, official figures on Thursday showed. Economists had expected unemployment to remain unchanged. The total number of people with jobs also disappointed, falling by 300 against expectations that 12,000 jobs would be added to the economy. The Australian Bureau of Statistics figures were significantly weaker than the market was looking for, JP Morgan economist Tom Kennedy said. "Unemployment has got to 6.4 per cent a lot quicker than we had expected and a lot faster than the Reserve Bank had expected as well," Mr Kennedy said. "The figures were very soft all around - there was virtually no employment growth, we've had hours fall, part-time employment fall and only very tepid full-time employment growth so all in all, a very, very soft report. "This pours a little bit of cold water over those expecting an earlier rate hike. "When you put this together with the expectation that tomorrow you are going to see the RBA downgrade their inflation forecast in the Statement on Monetary Policy, it really adds to the current guidance of the RBA that rates are going to remain on hold for a while yet."

(Daily chart below)

Australia 200 August 8 at 00:10 GMT 5448 H: 5448 L: 5448

Australia 200 Technical

S3S2S1R1R2R3
54005300500055005550-

During the hours of the Asian trading session on Friday, the Australia 200 Index will be looking to see if it can regain some of the lost ground from the last week and push back above the key 5500 level again. It is presently trading back between the key levels of 5400 and 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: 5500 and 5550.

Economic Releases

  • 01:30 AU RBA Statement on Monetary Policy
  • 01:30 AU Housing & Lending Finance (Jun)
  • 08:30 UK Trade Balance (Jun)
  • 12:30 CA Unemployment (Jul)
  • 12:30 US Non Farm Productivity (Prelim.) (Q2)
  • 12:30 US Unit Labour Costs (Prelim.) (Q2)
  • 14:00 US Wholesale Inventories (Jun)
  • JP BoJ MPC - Overnight Rate (Aug)
  • JP Economy Watchers Survey (Jul)
  • JP BoJ Monetary Policy Statement

*All release times are GMT

Source: Australia 200 - Drops Sharply Back Into Familiar Trading Range