Australia 200: Bounces Strongly Off Support At 5100

Australia 200 for Wednesday, October 15, 2014

Since the beginning of September the Australia 200 Index has declined strongly from its multi-year high after running into resistance around 5650 back to enter its previously established trading range between 5400 and 5500, before falling further below 5200 and to an eight month low around 5120 to close out last week. It enjoyed support from the 5200 level and was trying to rally higher after recently threatening to break through this level for the first time since February 2014, however it has since fallen lower to below 5100.  It has since received solid support from the 5100 level which saw it rally well in the last 24 hours.  Several weeks ago the 5400 level was called upon to offer support as the index desperately tried to stay in touch with its range, however it fell through there before rallying strongly back up to 5400. It has now fallen sharply to an eight month low at 5120. Up until recently, the 5400 level had done well and propped up price to keep it within the range.

In its recent fall at the beginning of August it moved down to a three week low around 5375, however it received solid support at the 5400 level which has allowed to consolidate and rally higher. The solid move higher throughout July saw it move strongly up through both the 5500 and 5550 levels to reach a then six year high around 5620. In recent weeks it has discovered a new key level to deal with after running into a short term resistance level at 5550, which earlier last week provided some solid support. It reversed strongly several weeks ago bringing it back down to almost touch the 5400 level before rallying back higher again. At the beginning of June the Australian 200 Index fell and broke back down through the key 5500 level towards a four week low around 5400 before consolidating and resting on support there for an extended period.

The 5400 and 5500 levels firmly established themselves as significant and now that we have seen a substantial break to one side, momentum has kicked in and seen the index fall strongly lower. Back at the end of May, it moved back and forth between the two key levels of 5500 and 5550 before the recent fall. Over the last couple of months the Australia 200 Index has formed an amazing attraction to the key 5500 level as it spent a considerable amount of time trading around it. A couple of weeks ago, the index fell away heavily back down to support around 5400 before returning to the key 5500 level just as quickly, as if gravity had pulled it back. The index has done very well over the last couple of years moving from below 4000 to its present trading levels around 5500.

Australia’s currency remains overvalued on most measures while any sell-off in global fixed-income markets could be “relatively violent,” central bank Assistant Governor Guy Debelle said in a speech.  “The Australian dollar is still higher than most conventional estimates of fundamentals would indicate, notwithstanding its recent decline,” Debelle said in the text of a speech in Sydney today. “The exchange rate is thus offering less assistance than would normally be expected in achieving balanced growth in the Australian economy. A lower exchange rate would be helpful in achieving that objective.”  Debelle’s address focused on the market’s failure to react in a sustained way to instability in the Middle East and eastern Europe, uncertainty about the turning point in U.S. monetary policy, the future direction of policy in Japan and Europe and concern about the strength of China’s economy. Investors may have been pacified by central banks’ increased forward guidance for interest rates, he said in the text of his speech.

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