The XJO is expected to edge higher on open this morning following a similar move from the U.S last night and their flat futures this morning.
The past couple of sessions have shown our market being indecisive yet volatile as we track sideward at the top of the range. We are currently using the previous key resistance at roughly 7,380 as support and roughly 7,450 as resistance as we consolidate sidewards.
The indecision likely represents our market digesting the current inflation and monetary policy environment as we head into a rate decision this afternoon at 2:30pm (AEST). Our last inflation reading came in weaker than expected compared to last quarter. This reduces the likelihood that the RBA will keep our economy in a tightening cycle for as long as previously expected. However, the last release of employment data came in stronger than expected which the RBA has previously stated they wish to weaken.
What the RBA does today is a coin toss. On one hand, don’t be surprised if they raise rates. Commentators have mentioned that they are likely to need to keep raising to get inflation under control. Furthermore, they didn’t raise rates last month. On the other hand, the RBA historically has preferred to kick the can down the road. They could easily keep rates on hold, continuing their “wait and see” stance.
It is hard to know how our market will react. If the RBA shifts to a hawkish tone, then expect falls. However, if their messaging continues to be dovish then our market could be re-invigorated to push onto higher levels such as 7,500 or even our all-time highs of roughly 7,600.
Of course, how the U.S trades will continue to affect our market. They continue to look overbought, however they may simply continue to consolidate and doggy-leg higher. If they can manage to keep up trending and the RBA is dovish, then 7,600 starts to look like a reality.
US Markets
US shares closed higher again overnight, with each of the three major indices again finishing in the green. There was a lack of US economic data overnight, so traders instead continued with the current bullish momentum. Also helping prices was fairly strong European economic data, with European growth stronger than expected, while European CPI was in-line with expectations. There wasn’t much in the way of US company earnings reporting overnight, but tonight the season will heat up again with some large pharmaceutical companies reporting amongst others. In general it’s a pretty light week for US economic data until Friday’s jobs report, so we could expect prices to maintain current levels as long as earnings remain solid.
Eight of the eleven sector groups of the SP500 closed higher overnight, with Energy stocks the strongest performers, followed by Real Estate stocks. Healthcare stocks were the weakest performers overnight.
Technically the SP500 is holding below a potential resistance level at 4,600, this level would have to break for further gains to look likely. The index remains on an overall uptrend but after some extremely positive recent movement, don’t be surprised to see some profit taking and a bit of a pullback. Should the index fall from here, recent resistance at 4,450 may now act as support.
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Advisor at TradersCircle and Emerald Financial
Joining the team at TradersCircle in 2011, Karo has extensive experience in both investing education and derivatives trading.
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