The Australian 200 index (ASX: S&P/ASX 200) continued its upward trajectory to close at its highest level since early March. Since the bottom of the March downturn, the bulls have managed a 6.5% gain, adding almost 2% in the opening days of this week. Australian mining stocks have led the charge with the S&P/ASX 300 Metal & Mining index (ASX: XMM) up 3.8% from the Tuesday open. As Chinese loan growth has sparked optimism around the reopening of their economy, the bulls have taken command. 

However, the global market has shifted its focus to the US CPI release later today to give an indication of the monetary policy stance of the Federal Reserve. With the bulls longing for a dovish tilt, the data release could be pivotal in the directional price action for the futures as we advance. 

Technical 

On the 4H chart, the rally has breached the daily pivot support at 7,283.8. While trading above the 50-day moving average, the RSI has slid into overbought territory, which could keep the bears in play for a potential selloff opportunity. However, at its close of 7,343.5, the bulls maintained the stronghold heading into the Thursday session. 

The index peaked in the first week of February, where a selloff led to a bottom in the latter parts of March. From there, the bulls have managed to retrace the majority of these losses to where the index is currently trading close to resistance at 7,348.5 (R1). The US CPI figures could now spark a continuation of the retracement or a reversal which could see a break of structure in the uptrend. 

If the data signals a potential dovish tilt, the bulls could break through the 7,348.5 resistance, where it could meet a psychological resistance at 7,368.9. The bears have historically reacted to this resistance, which could force hesitation into the bulls’ minds. However, strong fundamental backing on a dovish Fed could trigger that breakout, which could open a pathway toward the 78.6% Fibonacci retracement level at 7,426.5. 

Conversely, if inflation remains sticky, the bears could be enticed to break the uptrend. A move back to the daily pivot support at 7,283.8 is possible if the selloff can break down the 61.8% Fibonacci retracement at 7,313.8. From there, the market may look for support at the retracement midpoint around 7,234.7. 

Summary 

While the Australian shares have recovered successfully from the previous month’s selloff, data from the US still poses a significant risk to the momentum of the bullish rally. Long traders may hope for a soft inflation figure that could prompt a more dovish Federal Reserve to continue their rally toward 7,368.9. 

Sources: Koyfin, Tradingview, Reuters