ASX Sinks 4%
Another week comes to a close and we’re getting closer and closer to crossing over into H2. Markets have seen plenty of noteworthy action once again this week and it’s been a tricky one for FX traders. The week started out with decent risk appetite, seeing JPY firmly weaker while a shift into the end of the week saw XXX/JPY pairs giving back most of their gains. Away from FX, however, the big focus has been on Aussie stocks this week. The lead Australian index, the ASX200, was seen tanking over the week. So, let’s take a look at what caused this move and, as ever, if you caught it? Well done! If you missed it? There’s always next week.
What Caused the Move?
RBA Rate Hike
The main driver behind the drop in the ASX this week was the RBA June meeting. The bank hiked rates by a further .5%, well above market forecasts, and once again caught traders off-guard. Along with the hike, the RBA struck a firmly hawkish tone in its outlook, warning of further tightening to come as it fights to calm rising inflation. The RBA noted that it is committed to doing what is necessary in its fight against inflation with markets currently projecting around 1% more in rate hikes over the rest of the year. Given that the RBA has so far outpaced market projections, however, there are clear hawkish risks, being reflected in the ASX this week.
Risk Aversion Takes Hold
Following the initial downside pressure from the RBA rate hike, the ASX then fell deeper as risk aversion took hold over the back end of the week. Following the RBA hike, the ECB’s confirmation of a July rate hike increased the focus on central bank tightening. Markets are increasingly fearful of recessionary risks as tighter financial conditions and excessive inflation combine over the rest of the year. With global equities prices coming under heavy pressure, the ASX is now down around 4%. With US CPI still to come as we end the week, there is room for the index to fall further should we see a strong number out of the US, putting focus on hawkish Fed expectations ahead of the FOMC next week.
Technical Views
ASX200
The breakdown out of the recent, corrective, bull channel has seen the ASX breaking below the 7155.96 level and heading sharply lower. Price is now sitting on major support at the 6908.83 level, a break of which will be a major bearish development for the index. With both MACD and RSI bearish, the focus is on a test of 6762.19 next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.