The Australian 200 index (ASX: S&P/ASX 200) experienced a contraction in its recent session, marking a third day of decline out of the last four. This shift in momentum comes on the heels of an impressive 8-day winning streak the market enjoyed last week. The Reserve Bank of Australia’s (RBA) latest interest rate decision was the catalyst for this downturn, maintaining rates at 4.35%.
The RBA emphasized its commitment to addressing inflation, striving to bring it back to the targeted 2%-3% range. Although there was a notable decrease in inflation from 5.4% to 4.1% in December, it still remains above the target. This has diminished the likelihood of immediate rate cuts. The RBA further underscored its vigilance regarding potential uncertainties, including economic developments in China and geopolitical tensions in the Middle East and Ukraine, all of which could impact the domestic economy.
Adding to the bearish sentiment, Wall Street also saw a downturn in the US session, influenced by Jerome Powell’s recent statements. Powell’s remarks pushed back against expectations for imminent rate cuts in March or May, emphasizing the resilience of the US economy in the current monetary landscape. Against the backdrop of the RBA’s interest rate decision, the week has been relatively subdued, hinting that global sentiment may take the reins in steering the Australian 200 index’s price action in the closing sessions of the week.
Technical
On the 4H chart, an ascending channel remains in play following a breakout that failed to sustain. The recent crossing of the 25-SMA (green line) above the 50-SMA (blue line) confirms a bullish tilt in the shorter term, but a strong resistance level at 7,703.7 prevents a sustainable bullish run.
The current pullback is looking for support at 7,549.4, where the 25-SMA currently sits. Any movement below this level could signal a potential breakdown of the channel toward 7,470.0. If the bears pile into the breakdown, the price could fall toward 7,367.6, with the 100-SMA (orange line) underpinning a potential retracement to retest the breakdown level.
However, if the price remains above 7,549.4, the bullish trend within the channel could continue. Resistance at 7,634.5 could be the final hurdle to cross before a retest of the psychological resistance at 7,703.7 could occur. While another pullback could occur at this level, a breakthrough could trigger a move toward the 161.8% Fibonacci extension at 7,818.4 in the upcoming sessions.
Summary
The Australian 200 index fell for a third session out of the last four following the latest interest rate decision from the RBA. With a quiet week ahead, the global sentiment could drive the price action, with support at 7,549.4 being a crucial level to watch.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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