ASX 200 analysis: I’m not banking on a record high despite softer CPI

Central Bank policies regained the limelight this week, with Australia’s softer-than-expected CPI figures for Q4 paving the way for the RBA to cut rates by 25bp in February. The 3.2% y/y print for trimmed mean placed it beneath the consensus and RBA’s own forecasts, and the 0.5% q/q trimmed mean print was its slowest rate of growth since Q2 2021 (the post-pandemic average was 0.9%.  

The Australian dollar was broadly lower against its FX major peers, with markets now pricing in four cuts this year. While I’ll concede a February cut (or at least signal of a cut) is due, I remain doubtful that we’ll see the level of easing money markets are pricing in. Especially when the Fed are in no rush to cut with an elevated interest rate themselves, as a lower AUD simply imports higher prices. And that could cap gains for the ASX 200, even if it is on the cusp of reaching a new record high.

There were no fireworks after Federal Reserve held interest rates at 4.25 – 4.5%, and as I suspected are in no rush to continue cutting rates. Economic data remains robust, inflationary pressures are building, and we’re yet to see how hawkish Trump’s policies could turn out to be.

The BOC (Bank of Canada) cut their cash rate by -25% to 3% as expected but warned that Trump’s tariffs could cause persistent inflation, lifted their CPI forecast to 2.3% from 2.2% in 2025. Markets now see a 50% chance of another 25bp cut in March, but it seems apparent that we’re at or near the end of the BOC’s easing cycle.

Economic events in focus (AEDT)

• 00:00 – Chinese New Year
• 10:50 – JP foreigner bond, stock purchases
• 11:00 – NZ business confidence (ANZ)
• 11:30 – AU import, export prices, RBA bulletin
• 14:20 – RBA Assistant Governor Jones peaks
• 21:00 – EU GDP, business sentiment (ESI)
• 00:15 – ECB interest rate decision
• 00:30 – US GDP, PCE prices, spending (Q4)
• 00:45 – ECN press conference

ASX 200, SPI 200 technical analysis:

With the ASX 200 cash index honing in on its all-time high, I want to assess the likelihood of it breaking about it. It is reasonable to think that it will eventually, but I am not convinced it will be immediately when I compare it to the ASX 200 futures chart (SPI 200 on the right).

Price action on the SPI shows a less enthusiastic rally to this week’s high, with less upside travel from its 10 and 20-day EMAs. The pullback on Tuesday also tested its 20-day EMA while the ASX 200 cash market remained above its own. A bearish divergence has formed on both of their daily RSI (2), and while the RSI (14) is confirming the move higher on the ASX cash market, a small bearish divergence has formed on the SPI RSI (14). The SPI has also stalled just beneath its monthly R1 pivot.

I therefore assume that upside potential for both is limited over the near-term, and that could favour bears seeking to fade into upside pops.

ASX 200 futures (SPI 200) technical analysis

The 1-hour chart shows the ASX 200 is grinding higher with a bearish divergence on the RSI (14). Support was found at the weekly VPOC (volume point of control), just above the weekly pivot point. A bullish hammer has also formed at the close to suggest a bounce over the near term. But due to the resistance levels overhead including the weekly R1 pivot (8450), monthly R1 pivot (8469) and historical weekly VPOC (8493), the preference is to seek evidence of a swing high or false break around the 8500 level. Bears could seek bearish reversal candles such as inverted hammers, or spikes that close back beneath one of the resistance levels.

Such a move could still allow the ASX 200 cash index to tease its own record high without committing to a full breakout. And should we see a momentum shift at the highs, it could signal a deeper pullback for the SPI 200.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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