The Australian 200 index (ASX: S&P/ASX 200) found itself in a challenging landscape on Wednesday as a trifecta of factors nudged it lower. Rising inflationary pressures, soft Chinese data, and US debt limit uncertainty intensified trader anxiety, causing a 1.64% slide at the close. The index now faces an uphill battle to navigate the challenging backdrop.
The Monthly CPI Indicator in Australia revealed a 6.8% year-to-April print, up from the prior 6.3% at a faster pace than the 6.4% consensus. The sticky print could pressure the RBA to remain in restrictive territory for longer. Additionally, China’s NBS Manufacturing PMI of 48.8 missed the 49.4 consensuses from the prior 49.2, raising questions about the pace of their economic recovery, which caused a slump in the oil price that trickled over into the index. The further risk-off mood on the uncertain road for the debt limit agreement through Congress has reduced the appetite for equities, aiding the bears in their downside move.
Technical
A descending channel has formed on the 1D chart, with the bears looking to test support at 7,080.8, the 61.8% Fibonacci retracement from the mid-April peak. Judo Bank Manufacturing PMI statistics and Retail Sales due tomorrow could drive the price action in the upcoming sessions, along with the risk sentiment around the status of the US debt ceiling.
If the data supports the bearish cause, a channel breakdown could bring the support at 6,999.7 into play at the 78.6% Fibonacci retracement. From there, a neckline exists at 6,896.3 if momentum persists.
However, if the data is optimistic for the state of the Australian economy, the bulls could use the Fibonacci golden ratio as support to bounce back toward the midpoint at 7,137.9. A breakout could open the potential of a move toward the channel resistance at around 7,265.4, where the 38.2% Fibonacci retracement at 7,194.9 stands in its way.
Summary
It was a day to forget for the Australian equity market as the bears pounced on various adverse developments. If the data due tomorrow supports the cause, the retracement process can continue with a breakdown from 7,080.8 to 6,999.7.
Sources: Koyfin, Tradingview
