The trade: how are Australian markets responding to US trade policy shifts?

(AI video summary)

This video was created on 28 May for IG audiences by ausbiz.

US Tech 100 extends Elliott wave rally

The US Tech 100 (Nasdaq 100) has demonstrated impressive technical analysis momentum following Tuesday's surge. After narrowly avoiding a test of the 200-day moving average, the index appears poised to continue its upward trajectory.

The recent decline from February highs to April lows now appears corrective in nature, with the subsequent rally unfolding in what technical analysts recognise as a clean Elliott wave five-wave pattern. This trend structure suggests the US Tech 100 is likely to retest its February record highs in the coming sessions.

The gap higher witnessed overnight represents an unusual but significant technical development, typically indicating strong momentum continuation. Traders should monitor whether this momentum can sustain itself as the index approaches previous resistance levels.

Australia 200 approaches record territory

The Australia 200 has surprised analysts by climbing to within 2.5% of its record highs, defying expectations for a more subdued performance during the traditionally quieter May-June period. However, this year has proven anything but typical for market dynamics.

Several factors are contributing to the Australia 200's resilience. Monthly rebalancing flows and mechanical fund allocation at the start of new months provide consistent underlying support. Additionally, the index has benefited from its perception as a defensive option during periods of global uncertainty.

The upcoming Consumer Price Index (CPI) data release is expected to reinforce expectations that the Reserve Bank of Australia (RBA) will implement interest rate cuts in July and potentially August. This dovish monetary policy outlook continues to support Australian equity valuations.

Australian dollar tests key technical levels

The Australian dollar reached a new six-month high at 0.6537 this week before encountering significant resistance. The rejection from this level has been pronounced, pushing the currency back below its 200-day moving average – a critical technical benchmark.

The current positioning suggests the Australian dollar faces near-term headwinds, with potential downside towards 0.6400. Key support lies around 0.6350, representing the lows from the past six weeks. A break below this level could trigger a deeper correction towards 0.6250.

The currency's performance will likely depend heavily on the upcoming CPI data and its implications for RBA policy expectations. Any signs of persistent inflationary pressure could provide support, while softer readings might accelerate the downward move.

Gold faces technical resistance amid US dollar strength

Gold prices have encountered resistance around 3366, coinciding with trend channel resistance levels. The precious metal's recent rally has been undermined by renewed US dollar strength following better-than-expected consumer confidence data.

The combination of technical resistance and US dollar volatility suggests spot gold may experience a deeper pullback towards 3200. While the longer-term bullish outlook remains intact, the immediate risk-reward profile has shifted unfavourably for gold bulls.

Traders should monitor US dollar movements closely, as currency strength continues to be a primary driver of gold price action. Any sustained US dollar rally could pressure gold further in the near term.

Bitcoin shows signs of exhaustion

Bitcoin has displayed tepid follow-through after breaking above 109,356, raising concerns about the sustainability of its recent rally. The relative strength index (RSI) has reached overbought territory, suggesting the cryptocurrency may be due for a technical correction.

Despite the longer-term bullish outlook for Bitcoin, the current technical setup indicates risks have shifted to the downside. A pullback or "clean-out" appears increasingly likely before the next directional move becomes clear.

The cryptocurrency's inability to generate strong momentum following its breakout suggests underlying buying interest may be waning at current levels. Traders should exercise caution and consider taking profits or reducing exposure in the near term.