Australia 200 – Drops Sharply to Eight Month Low Below 5200 

Australia 200 for Tuesday, October 7, 2014

Since the beginning of September the Australia 200 Index has declined strongly from its multi-year high after running into resistance around 5650 back to enter its previously established trading range between 5400 and 5500, before falling further below 5200 in recent hours. A few weeks ago the 5400 level was called upon to offer support as the index desperately tried to stay in touch with its range, however it fell through there before rallying strongly back up to 5400. It has now fallen sharply to an eight month low below 5200. Up until recently, the 5400 level had done well and propped up price to keep it within the range. For most of this year when the index has fallen to the 5400 level, it has bottomed out at around 5370 however this latest has failed as it continued to fall lower.

In its recent fall at the beginning of August it moved down to a three week low around 5375, however it received solid support at the 5400 level which has allowed to consolidate and rally higher. The solid move higher throughout July saw it move strongly up through both the 5500 and 5550 levels to reach a then six year high around 5620. In recent weeks it has discovered a new key level to deal with after running into a short term resistance level at 5550, which earlier last week provided some solid support. It reversed strongly several 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.

The 5400 and 5500 levels firmly established themselves as significant and now that we have seen a substantial break to one side, momentum has kicked in and seen the index fall strongly lower. 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. The index has done very well over the last couple of years moving from below 4000 to its present trading levels around 5500.

The RBA is not expected to raise its interest rate until at least early 2015, but that might come sooner if the Australian dollar keeps falling. All 13 economists surveyed by AAP forecast the cash rate will remain at 2.5 per cent after the RBA’s board meeting on Tuesday, and for the rest of 2014. Eight of those are predicting a hike in the first half of 2015, which would be the first interest rate rise in over four years. Since the RBA board’s last meeting, the Australian dollar has fallen six per cent to as low as 86.63 cents. Commonwealth Bank economist John Peters said the focus on Tuesday will be on what the RBA says, if anything, about the local currency. “The fall in the Australian dollar is a very welcome development for the central bank and will help the transition to non-mining led growth,” he said. “It also gives the RBA more scope to hike rates amid rising concerns about the elevated level of investor activity in the housing market.” The central bank is concerned soaring house prices and rapidly growing investor activity could pose a risk to banking stability and the economy, and has raised the possibility of changing regulations to curb risky lending to property investors.

(Daily chart below)

Australia 200 October 7 at 02:15 GMT 5212 H: 5315 L: 5194

Australia 200 Technical

During the hours of the Asian trading session on Tuesday, the Australia 200 Index is falling sharply and threatening to break through the 5200 level for the first time since February 2014. 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: 5200.

• Above: 5500 and 5650.

Economic Releases

• 23:01 (Mon) UK BRC Shop price index (Sep)
• 23:50 (Mon) JP Current Account (Aug)
• 03:30 AU RBA – Overnight Rate
• 05:00 JP Leading indicator (Prelim.) (Aug)
• 08:30 UK Industrial Production (Aug)
• 08:30 UK Manufacturing Production (Aug)
• 12:30 CA Building permits (Aug)
• 14:00 UK NIESR GDP Est. (Sep)
• 14:00 US IBD Consumer Optimism (Oct)
• 19:00 US Consumer Credit (Aug)

* All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

Source: marketpulse

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