On Wednesday, the Australian 200 Index (ASX: S&P / ASX200) experienced a dip of nearly 0.7%, even as favourable inflation data was unveiled. The monthly CPI index showed a gradual uptick, registering a 4.3% increase, the slowest pace observed in almost two years.
This marked a significant drop from the previous 4.9%, falling short of the 4.4% consensus. Interestingly, this decline unfolded against the backdrop of a slowdown in demand for steel, which triggered a downturn in the miner-heavy materials sector. Looking ahead, market observers are keenly anticipating the US CPI report tomorrow, as it holds the potential to influence risk appetite and shape the equity market’s trajectory.
On the daily chart, the index showed a promising uptrend leading up to this week. However, as the RSI trickled into overbought conditions, a pullback occurred and eventually found support at 7,468.5, a prior psychological resistance level.
If the price action falls below this level, a longer-term retracement could occur, with the 25-SMA (green line) being the first potential level of support at 7,401.8. Any movement below this level could confirm a shift in sentiment, opening a door for the bears to drive the index toward 7,361.5 and 7,288.6.
However, if the support at 7,468.5 holds, the recent breakdown from the uptrend could undergo a retest. In this case, resistance at 7,568.4 could be the level to watch, as this is where the initial breakdown occurred. If the price clears this level, the uptrend could continue, bringing the prior resistance at 7,635.4 back into the spotlight.
Despite a lower-than-consensus inflation reading, Australian shares took a step back on Wednesday, led by mining stocks. Support at 7,468.5 could now play a pivotal role in determining whether the breakdown is sustainable.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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