ASX 200, Iron Ore, Copper, Commodities, RBA – Talking Points:
The ASX 200 has underperformed its major global counterparts despite climbing as much as 41% from the March low (4,387), and the index may continue to lag behind in July as coronavirus concerns along with the dependency on global trade appear to be weighing on Australian shares.
Although Reserve Bank of Australia (RBA) Governor Philip Lowe believes that health and “economic outcomes so far have been relatively good,” the
spike of coronavirus cases in Australia’s second most populous state could jeopardise the already fragile economic recovery.
Furthermore, the recent pull-back in iron ore prices may be contributing to the weakness seen in the ASX 200 as Vale, the world’s largest producer, restarts its operations in Brazil.
Coronavirus Cases Spike in Victoria
Climbing cases of coronavirus in Victoria could lead to the reimposition of lockdown measures with double digit case numbers registered in the last 11 days.
Victorian Premier Daniel Andrews is coming under increasing pressure to re-introduce restrictions in local hotspots as Chief Health Officer Brett Sutton expects the “outbreak to get worse before it gets better”.
The recent spike has seen neighbouring states enforce travel warnings for Melbourne, which could prolong the pain for the local tourism industry and continue to put pressure on asset prices.
ASX 200 Supported by Commodity Prices
Nevertheless, it seems as though the recovery in commodity prices has helped support local asset prices, with the standout performance of iron ore being touted as the ASX’s potential saving grace.
However, the demand-driven recovery in commodities may come under increasing pressure as global cases of Covid-19 continue to climb, preventing the easing of restrictions necessary to fuel a substantial economic recovery.
However, commodity prices may come under pressure as global cases of Covid-19 continue to climb, with the resumption of operations at Vale, the world’s largest producer of iron ore, likely to resolve the supply-side issues that resulted in the metallic rock surging to fresh yearly highs.
Source – TradingView
Iron Ore Prices Pull-Back from Yearly Highs
From a technical standpoint, iron ore prices are perched precariously above key psychological support at the 38.2% Fibonacci (702.1), after collapsing through the uptrend from the May lows earlier this month.
The RSI suggests that a further decline is highly likely as it accelerates to the downside, although the 700-handle in remains a significant hurdle for sellers to overcome.
A retracement back to the 200-day moving average could eventuate if price fails to hold above the 38.2% Fibonacci (702.1) and clear support at the 50-MA (683.6), possibly dragging the Australian benchmark index along for the ride.
ASX 200 Stalling at 2009 Uptrend
The ASX 200 continues to struggle at the imposing 6,000-handle, with recent price action suggesting that the rally may be running off fumes.
Consolidation in a Symmetrical Triangle may give way to a substantial move in the ASX if price overcomes resistance extending from the yearly high (7,125) or support at the 50% Fibonacci (5,792).
Resistance at the 61.8% Fibonacci (6,124) remains impenetrable and will need to be overcome to ignite further bullish bias as the development of the RSI along with momentum indicators reinforce the exhaustion seen in price action.
Considering the weakening fundamental backdrop, the path of least resistance remains tilted to the downside, with a close below the 50-day moving average (5,680) possibly clearing a path back to the 50% Fibonacci (5,159) and 5,000-handle.
Source – TradingView
— Written by Daniel Moss
Follow me on Twitter @DanielGMoss