Australia’s ASX 200 index broke medium-term support at 4175/4180, warning of another test of primary support at 4000. Respect of the zero line (from below) by 63-Day Twiggs Momentum indicates continuation of the primary down-trend. The broad band of support between 3800 and 4000 is likely to hold, but failure would signal a decline to 3500*.
* Target calculation: 3900 – ( 4300 – 3900 ) = 3500
The ASX 200 Index is forming a bottom between 4000 and 4400 after breaching its descending trendline. Breakout above 4400 would signal the start of a new up-trend, but that may be some way off. Recovery of 63-day Twiggs Momentum above zero would strengthen the signal. For the present we continue in a narrow consolidation below 4300. Upward breakout would test 4400, while breach of the rising trendline would warn of another test of primary support at 4000.
* Target calculation: 4400 + ( 4400 – 4000 ) = 4800
The Aussie and Canadian Dollar mirror the CRB Commodities Index, testing resistance at their long-term highs. The Aussie encountered resistance at $1.08. Breakout would confirm a primary up-trend — already signaled by 63-day Twiggs Momentum above zero.
* Target calculation: 1.08 + ( 1.08 – 0.96 ) = 1.20
Canada’s Loonie is similarly testing resistance at $1.01. Breakout would offer a target of $1.06*.
* Target calculation: 1.01 + ( 1.01 – 0.96 ) = 1.06
The South African Rand is fairing slightly better, with the Aussie testing medium-term support at R8.00. Failure would warn of a correction to the long-term rising trendline at R7.50.
* Target calculation: 8.00 – ( 8.50 – 8.00 ) = 7.50
Australia’s ASX 200 index is struggling to break medium-term resistance at 4300. 63-Day Twiggs Momentum continues to indicate a primary down-trend (breach of its rising trendline would strengthen the signal). Failure of support at 4180 would warn of another test of primary support at 4000.
* Target calculation: 4300 + ( 4300 – 4200 ) = 4400
The Aussie Dollar is testing short-term support at $1.06, the lower peak at $1.08 warning of selling pressure. Breach of the secondary rising trendline (and support at $1.06) would warn of a correction to the long-term trendline around $1.02. Recovery above $1.08, however, would signal a fresh primary advance with a long-term target of $1.20*.
* Target calculation: 1.08 + ( 1.08 – 0.96 ) = 1.20
Canada’s Loonie continues to consolidate below $1.01 on the weekly chart, while 63-day Twiggs Momentum crossed to above zero, indicating a primary up-trend. Breakout above $1.01 would confirm, offering an initial target of $1.06*.
* Target calculation: 1.01 + ( 1.01 – 0.96 ) = 1.06
Both the Aussie and the Loonie are strongly influenced by commodity prices. If the CRB Commodities Index breaks resistance, expect both currencies to follow — though Canada will benefit more from higher oil prices.
The ASX 200 index respected its rising trendline on the weekly chart, indicating continuation of the advance to test 4400. Breakout above 4400 would indicate the start of a primary up-trend, while recovery of 63-day Twiggs Momentum above zero would strengthen the signal.
* Target calculation: 4400 + ( 4400 – 4000 ) = 4800
Bullish divergence on the daily chart shows medium-term buying pressure signaled by 21-day Twiggs Money Flow. Breakout above 4300 would indicate a test of 4400.
The ASX 200 broke through support at 4220 on the hourly chart, signaling a correction to test primary support at 4040. Retracement to test the new resistance level is weak and follow-through below intra-day support at 4180 would confirm the signal.
The ASX 200 index has been hesitant since the breach of its descending trendline. A bottom may be forming, but 13-week Twiggs Money Flow reversal below zero warns us not to expect much upside any time soon. Respect of the rising (green) trendline would indicate another test of 4400, while penetration would mean another test of primary support at 4000*.
A 2-hour chart shows the index headed for another test of resistance at 4310 on Monday. But momentum is falling and respect of 4310 would suggest a correction to 4000.
Latest stats from the RBA show that the sharp contraction in business credit has slowed, but growth of personal credit (mainly mortgage finance) is at its lowest rate since the early 1990s and is trending downwards. Credit growth does not have to fall below zero for it to have a negative impact on the economy. A fall in the rate of credit expansion will slow the rate of economic growth.
It appears that the objective of this Statement is to emphasise that without a significant deterioration in global financial conditions policy should remain unchanged. When you assess the various pieces of the Bank’s description of the domestic economy – weak employment; rising unemployment rate; subdued retail spending; soft housing market; below trend growth outside mining; scaling back of public investment; building construction subdued; inflation to remain around the mid-point of the target range; policy at neutral, not stimulatory – we see a fairly clear case for policy to move into the stimulatory zone immediately. Of course our forecasts as contrasted with the Bank’s forecasts clearly suggest that the qualitative descriptions provided in this statement are understating the need for a policy response.
It has been and remains our view that a further 50bps in policy easing can be justified immediately although our forecast is that this adjustment is likely to occur over a three to four month period. We find the use of the requirement that demand conditions need to weaken materially before a rate cut can be delivered overly conservative and expect that the Bank’s policy will change more rapidly than we assess is their current intention.
Consequently at this stage we maintain our view that the next rate cut in this cycle can be expected in March to be followed by a move in May but recognise that we are currently dealing with a central bank that while acknowledging all the reasons policy needs to be stimulatory appears to have no immediate intention to move.
Bill Evans
Chief Economist
