The Australian 200 index (ASX: S&P/ASX 200) celebrated its seventh consecutive session of gains on Tuesday, reaching nearly one-month highs fuelled by the latest economic data from down under. Despite December’s retail sales dipping by a larger-than-expected 2.7%, compared to the anticipated 1% decline, the market found optimism in the context.
This decrease was attributed to a shift in consumer spending, with shoppers moving some customary December purchases to November to capitalize on Black Friday sales. As the retail turnover declined, it solidified the market’s perspective that the Reserve Bank of Australia’s tightening cycle has reached its zenith, leaving the door open for potential rate cuts in the middle of the year, which could further underpin the equity market.
Technical
On the 4H chart, no sustainable break has occurred from the current uptrend, leaving the index testing resistance at 7,622.9, a psychological level that previously triggered a downturn. Despite the recent momentum, the 25-SMA (green line) still trades below the 50-SMA (blue line), suggesting that the short-term still holds a bearish tilt and could trigger a pullback, with the RSI in overbought conditions and the potential formation of a double top.
If the pullback occurs, the price could attempt a breakdown at 7,563.3, which could force the index through the dynamic support of the uptrend toward the 50-SMA, currently at 7,508.4. This could be a pivotal level, as an additional leg down could force the price through support at 7,468.1, confirming the bearish trend as the price action falls below the 25-SMA.
However, as long as the price remains above the support at 7,563.3, the resistance at 7,622.9 is vulnerable. A breakout above this psychological level could trigger a run toward the 161.8% Fibonacci extension from the mid-January bottom at 7,808.4.
Summary
While the Australian 200 index is on a seven-day winning streak, it faces tough challenges in the Australian inflation data and the US Federal Reserve’s interest rate decision later this week that could determine whether it has enough legs to clear the psychological resistance at 7,622.9.
Sources: Koyfin, Tradingview, Reuters
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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