The Australian 200 index (ASX: S&P/ASX 200) is riding a wave of optimism, reaching heights unseen in the past three months. The financial sector is spearheading this surge, propelled by a newfound calm in the market following diminished concerns about potential interest rate hikes during Tuesday’s session. RBA governor Michele Bullock has assured a prudent approach to monetary policy, emphasizing a vigilant stance and closely monitoring incoming data for informed decision-making. Bullock reassures that the economy is holding its ground in the battle against inflation.
Despite this positive backdrop, investors are exercising caution as they brace for upcoming events, including the release of US inflation data and Australian unemployment figures later this week. Compounding this sense of caution is a dip in business conditions and confidence in November, though they still remain above the long-term average. The NAB Business Confidence report indicates a decline from -3 to -9, introducing a note of restraint into the prevailing positive investor sentiment as we await the forthcoming US inflation report.
Technical
On the 4H chart, a rising wedge has formed, with the index pushing through the dynamic resistance and a psychological supply zone, hinting at the formation of a steeper uptrend, confirmed by the crossing of the 50-SMA (blue line) above the 100-SMA (orange line). As we advance, today’s inflation data could determine whether the breakout will be sustained or a pullback is imminent.
The supply zone at 7,200.2 could provide support if a pullback occurs. However, a breakdown below this zone could result in a longer pullback, where the 7,142.7 support level converges with the lower end of the wedge. This move could put the index at risk of a wedge breakdown, with the 61.8% Fibonacci golden ratio of 7,102.8 being a level of interest where it converges with the 25-SMA (green line).
However, failure to breach below 7,200.2 could see the bullish momentum in the index continue toward 7,262.5. Higher resistance is established at 7,281.1 and 7,318.6 in the longer term, which could provide additional hurdles to the bulls’ momentum.
Summary
At multi-week highs, the Australian 200 index keenly anticipates the US inflation data later today to gauge whether the recent breakout from the rising wedge could be sustained through the end of this week.
Sources: Koyfin, Tradingview, Reuters
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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