The XJO is expected to edge higher on open this morning following another strong move higher from the U.S last night which saw their market both hold their strength and break the short-term downtrend line. Their futures are flat.

Yesterday we got a bit ahead of ourselves, likely spurred on by positive U.S futures during our session. We gave up some of our intraday gains to finish around 7,150, which is a key level of support/resistance. It is a level our market has closed and opened at several times during this period of consolidation. This morning we should open near the highs of yesterday which come in at roughly 7,175. If U.S futures can hold steady through our session today, then we could easily see a test of 7,200.

Markets have been surprisingly resilient leading into Powell’s speech Friday night. At the beginning of the week, a relief rally didn’t look likely for our market, but alas, we have followed the U.S higher. This could, of course, end in tears next week if Powell sticks to a higher-for-longer tone. Furthermore, with the small rally we have seen, we have formed a high in which it is more feasible to fall from. If Powell’s speech isn’t received well, then markets will likely go on to retest key supports. For us, that translates to retesting roughly 7,100.

Technically, we also have a downtrend line likely in play. This comes in just above 7,200. Even if Powell’s speech is received well initially, our market will struggle to push through both the downtrend line and the convergence of the MAs which come in at roughly 7,250. At this stage, it still feels like there is more bearish risk for our market – more so than the U.S which is arguably still trading in a broad uptrend.

US Markets

US shares closed higher overnight, with each of the three major indices finishing in the green. The tech and growth-based NASDAQ was again the best performer, while the DOW JONES saw comparatively less buying. US economic data overnight was mixed, but there was a drop in US manufacturing and services PMIs in August, which suggests a slowing of the economy. With a potential slowing of the economy, there is a likelihood that inflation will slow as well, which reduces the chances of more interest rate rises. Any data that suggests a lower likelihood of future rate rises will be golden for US markets at the moment. The next major update on US rates will come over the weekend with the Federal Reserve’s policy symposium at Jackson Hole. The Fed will outline their views on interest rates moving forwards and this will certainly influence share market movement.

Ten of the eleven sector groups of the SP500 closed higher overnight, with only Energy stocks finishing slightly lower. Technology, Communications, and Real Estate stocks fared the best.

Technically, though the SP500 remains on a downtrend it has bounced off a potential support level around 4,325. The index is now rising towards the potential resistance at 4,450; this level would have to break for further gains to look likely. Should the index keep falling from here, the recent support at 4,325 is the level to watch.

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