Worldwide, equity markets have been reasonably strong in recent weeks with many testing all time highs.
Tuesday’s session saw the U.S. markets continue the positive trend with the Russell, S&P 500 and Nasdaq all around their highs and continuing to grind upward.
Wednesday is FOMC day and while expectations are for no changes in interest rates in the U.S., it will be interesting to see how the Australian market reacts.
While the U.S. is at all time highs, Australian markets are showing a distinctly negative setup.
There’s a high correlation between both the U.S. and Australia, however, at this point in time Australian markets are lagging considerably.
The AUD/USD has been incredibly bullish in the last week or two and has pushed toward the 80-cent mark. This is on the back of the USD weakness we’ve seen in other currency pairs as well.
On Wednesday, CPI came in below expectations, however, that did little to impact what was a strong open for the ASX200. The RBA’s Lowe pointed out today, that inflation was in line with expectations and there was no need to hike rates in line with other central banks.
Breaking Support
If the U.S. equity market rally begins to stall, I’d expect to see the Australian market fall harder to the downside, potentially offering traders strong opportunities to be short the market.
We have a clear support level near 5600.
If we get any kind of correction in the S&P 500 in the days following the FOMC update – then look for this long-term support level to crack with significant downside momentum.