Amid a return of a hawkish market tone, the Australian 200 index (ASX: S&P/ASX 200) closed the Friday session in the red, as strong private sector activity poked the hawkish bear, with the expectation of higher domestic interest rates weighing on the equity market. 

The Judo Bank Composite PMI Flash statistic came in at 52.6, up from 48.5 the previous month. The Services PMI was higher than expected at 52.6, as the market expected a contraction to 47 from the previous 48.6. Although the manufacturing PMI contracted from 49.1 to 48.1, analysts expected a figure of 48. Following the RBA minutes that revealed potential hawkishness in the next monetary policy decision, these statistics have reignited the sentiment that further rate hikes might persist. 

Technical 

On the 4H chart, the contraction on Friday has broken the structure of the uptrend extending back from the late March bottom. As the index broke down the daily pivot point at 7,362.1, the index retested the Fibonacci golden retracement ratio of 61.8% at 7,311.7 before closing at 7,331.0. 

The index is trading in a consolidation range between 7,311.7 and 7,388.2. Going into the next week, the bulls could look to correct the contraction, which would lead them to retest the pivot point at 7,362.1. A breakthrough could bring the consolidation resistance at 7,388.2 in the bulls’ path as they look to the 78.2% Fibonacci retracement at 7,424.80.  

Alternatively, if the daily pivot resistance holds, a breakdown of consolidation support is on the cards. A move below 7,311.7 could trigger a downside push toward the Fibonacci midpoint at 7,232.2. Strong support exists at 7,196.2 if the bears break further down. 

Summary 

With the month-long uptrend at risk, the bears could gather momentum to break down the support at 7,311.7 toward 7,232.2. Alternatively, the bulls could fight back to pare the losses by breaking through the pivot point at 7,362.1 on their way to the consolidation resistance at 7,388.2.  

Sources: Koyfin, Tradingview, Reuters