Overview
The ASX 200 index has shown a stronger correlation with Australian bond futures than with Wall Street indices in recent months. This article explores the implications of this relationship and the current market dynamics affecting the ASX 200.
Domestic Rates Driving the ASX 200?
The ASX 200 appears to be heavily influenced by changes in the Reserve Bank of Australia's (RBA) interest rate expectations. Recent data, particularly a weaker-than-expected employment report, has led to a reduction in rate hike probabilities, which in turn has buoyed the index.
Analysis of correlations between SPI 200 futures, Australian three-year government bond futures, and S&P 500 futures reveals that while short-term correlations favor the S&P 500, longer-term correlations indicate a stronger relationship with domestic bond futures.
Similar Price Structures in Equities and Bonds
Both the SPI 200 and Australian three-year government bond futures are forming ascending triangle patterns, characterized by higher lows against horizontal resistance. The bond futures have recently broken above their resistance, while the ASX 200 is approaching its resistance zone.
Breakout Approaching?
The ASX 200 is nearing a critical resistance zone between 8,813 and 8,834.5. A sustained breakout above this zone could signal a bullish trend, with potential upside targets at 8,890, 8,960, 9,060, and 9,120. Conversely, failure to break this resistance could lead to a decline towards 8,735 and further down to 8,660.
Technical indicators such as the RSI and MACD suggest that there is potential for upside momentum, although the price action around the resistance zone remains crucial for traders.