The XJO is expected to open higher this morning following another break into fresh all-time highs in the U.S on Friday.
Our session on Friday saw us shed about half the session’s gains to finish only marginally in the green. It seems we are being dragged into positive territory, kicking and screaming, by the U.S which has had an extraordinary run higher recently.
Our market remains cynical and cautious. The U.S acceleration over the past few weeks is unsustainable. They will mean revert and profit take at some point soon. Our market, who in contrast is feeling very non-committal, doesn’t seem like it wants to price in U.S gains right before they sell off. Of course, the U.S can keep rising for a while yet, and our market seems likely to be dragged higher with it. However, the lacklustre and moody response from our market, like we have seen over the past week or so, will likely continue as well.
When the U.S does indeed sell off, we will likely have no issue pricing in their losses. It feels like we are already looking for an excuse. However, if our market starts to believe in more rate cuts from the RBA, then our mood may shift back to how we were trading prior to the recent selling. For this to happen, we likely need to see weaking in key macroeconomic figures (GDP, employment, CPI, etc). Last Thursday, we saw a slight weaking in the labour market, but in isolation, wasn’t enough to spur buying. However, as evidence of a slowing economy surmounts, each key release will have a higher chance of prompting movement. Unfortunately, there is little in the week ahead for local releases.
For now, it seems we are happy to trade in the channel that has been holding since our selling ceased back at the start of the month. The top of the range is roughly 8,880 – a level that has held several times. The bottom of the range up until Thursday last week had been roughly 8,800. Our market was also holding the 50 day MA and forming a small uptrend. However, Thursday’s selling brought the bottom of the range back down to 8,750 – the lowest our market has traded at since the selling began.
The 50 day MA seems to be a bit of a magnet for our market as we consolidate. By this popular short-term metric, our market is neither overbought, nor oversold. In essence, the average price this market is being bought and sold for, is about the same price it has been bought and sold for over the past few months (on average). Until we are willing to commit, it makes sense we don’t stray too far from it.
In the week ahead, the U.S has PMI data and Powell speaking tomorrow night. On Wednesday night, they have New Home sales, and on Thursday night they have GDP data. To finish the week, they have PCE data on Friday night.
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