The XJO is expected to open lower this morning following an intraday retracement in the U.S overnight, which saw their market finish marginally in the red. Their futures have also moved into the red, and if they remain so during our session today, expect the opening losses to extend.
It seems over the past couple of days we have led the U.S. On Friday, our market broke into fresh all-time highs (without leads from the U.S the night before), and the U.S followed suit the following evening. Yesterday, we formed a tombstone doji, where we retraced from our intraday highs to finish at roughly where we opened – again, we saw this reflected in the U.S overnight. It should remain this way provided the U.S can at least hold ground, and we remain in a low volatility environment. When the U.S does sell off however, our market will likely be eager to follow suit.
This morning we should open and test the previous all time high at roughly 7,700 as support. If the U.S futures continue to lament, expect a move back towards 7,650 which is roughly where the uptrend line comes in.
There is a slew of data this week that could upset things, but we will have to wait and see. No doubt markets are looking toppy, and U.S unemployment on Friday evening, or Powell testifying tomorrow night, could be the catalyst their market needs to finally mean revert and take profit.
Our market is in a different situation, we have not had nearly as much gains. The RBA has been rather rigid, indicating that rate cuts are only likely at the end of the year – if we are lucky. They even finished their last statement with the caution that rises are not off the table. However, the data since the start of the year has largely been weaker than expected, giving credence to the idea that rate cuts could be brought forward. Today we have GDP numbers, and if they miss, it will likely be a bullish sign for our market.
It is worth mentioning though, that data in the U.S has been stronger than expected this year. This would ultimately indicate that rate cuts for the U.S are likely to be pushed back. This is an issue for the RBA, because even if they want to cut rates, they will likely hold off for as long as they can until the U.S cuts first. The reason for this is because the RBA has a responsibility to keep our dollar competitive, and if we enter a cutting cycle before the U.S does, it will likely tank our dollar. This could ultimately mean we push harder into recession. This is a longer-term outlook or concern, for now, keep trading the technicals and be aware of pivotal data releases.
US Markets
US shares closed lower overnight, with each of the three major indices finishing in the red. Apple dragged technology stocks lower after it was fined by European regulators for anticompetitive behaviour around music streaming. Tesla shares also fell after Chinese sales numbers disappointed. There was otherwise a lack of major economic data overnight, and instead investors are looking ahead to the data later this week, which includes speeches from Fed Chair Powell on Wednesday night to US unemployment on Friday. Overall prices are looking very elevated after a period of strong gains, and we are likely to see a profit taking pullback at some point.
Seven of the eleven sector groups of the SP500 closed higher overnight, with Utilities the strongest performers, followed by Materials. Energy, Discretionary, and Communications stocks saw the most selling.
Overnight the SP500 reversed its initial gains and pulled back to close slightly lower. The index is trading around all-time highs and its hard to say where it may find resistance but with the overnight pullback, we could see a move back towards the uptrend line, which currently sits around 5,050 index points.
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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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