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Improving Global Growth Supports Australian Stock Index

Improving Global Growth Supports Australian Stock Index

Improving global growth supports Australian stock indexThe Reserve Bank of Australia refrained from cutting the official cash rate at its June policy meeting. The International Monetary Fund upgraded China’s 2017 growth prospect. Will the ASX 200 continue rising as global growth prospects improve?

The Reserve Bank of Australia (RBA) held the interest rate at 1.5% at its June 6 policy meeting. RBA mentioned that business conditions have improved and capacity utilization has increased, commodity prices are generally higher than a year ago, and China’s growth is being supported by increased spending on infrastructure and property construction. The central bank projects economic growth will increase gradually to above three percent over next couple of years.

Latest data from China, Australia’s biggest export market, were positive: industrial output grew at a steady 6.5% pace in May from a year earlier, and retail sales growth was unchanged at 10.7%. The International Monetary Fund on Wednesday raised its 2017 growth outlook for China to 6.7% from its 6.6% forecast in April citing country’s robust growth in the beginning of the year. Improving global growth, which boosts the demand for commodities accounting for majority of Australia’s exports, is bullish for Australia’s stock market index.

ASX 200 Daily Chart

On the daily timeframe AU200: D1 is rebounding after hitting four-month low in the beginning of June. The price has closed above the 50-day moving average MA(50).

  • The Donchian channel indicates an uptrend: it is tilted upward.
  • The Parabolic indicator has formed a buy signal.
  • The MACD indicator is below the signal line and the gap is narrowing, which is a bullish signal.
  • The stochastic oscillator has breached into the overbought zone, which is a bearish signal.

We believe the bullish momentum will continue after the price closes above the upper boundary of Donchian channel at 5841.87. This level can be used as an entry point for placing a pending order to buy. The stop loss can be placed below the Parabolic signal at 5627.26, confirmed also by a fractal low. After placing the order, the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level (5627.26) without reaching the order (5841.87), we recommend cancelling the position: the market has undergone internal changes which were not taken into account.

Technical Analysis SummaryPosition – BuyBuy stop – Above 5841.87Stop loss – Below 5627.26

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