Safety first for Australian investors

10.19 AEDT, Monday 18 March 2013

Safety first for Australian investors

By Ric Spooner (Chief Market Analyst, CMC Markets)

Australian investors will adopt a safety first attitude to the Cyprus news until they are in a better position to assess the extent of European concerns in trading tonight.

While Cyprus is a very small economy, the weekend’s news of a European mandated levy on its bank deposits does carry potential concerns for the wider financial situation in Europe. These include the possibility that Cyprus could reject its bailout conditions and the impact on confidence in the banking systems of other European nations. Looking further ahead international investors will be concerned that the tough attitude on display from European Finance Ministers over the weekend will make use of the European Bailout funds more difficult. This may in turn lessen the effectiveness of the ECB’S bond buying safety net.

While we will see some selling in market’s this morning, investors are likely to wait to see how this situation develops before pushing markets through major support levels. Currency markets have reacted this way. While there has been a significant drop in the EURUSD in early trade it has not yet broken below its 200 day moving average at around 1.2873.

The S&P/ASX 200 index has continued to exhibit higher volatility but lower momentum since 20 February. In technical terms, the index broke below the support of the trend channel last week. It had followed this channel since November. This breach of support has not yet led to a conclusive downtrend. Instead the index has formed an ongoing, but rising consolidation pattern. Support for this pattern is currently at around 5050. A break below this level would be a good clue that the much awaited correction is underway. Resistance is currently at around 5185. A clear break through that level could indicate that the recent period of indecision is over and the major uptrend has resumed.

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