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  • ASX 200 Index moving towards a key resistance target.
  • Upbeat projections in the face of COVID-19 lockdown easing from the RBA supporting risk appetite. 

Australian shares have been rising on Friday, with a slight setback ahead of the Reserve Bank of Australia’s quarterly Statement on Monetary Policy, although cheering the optimism in the report and correcting higher. 

At the time of writing, ASX 200 Index is trading at 5,402, +1.05% on the day having travelled form a low of 5,364.2 to a high of 5,428. Energy, financials and property stocks have been leading the gains which cheered a positive surge in both European and US markets on Thursday. Investors are getting behind the positive sentiment surrounding nations putting businesses back to work and relaxing lockdown measures in order to open up their economies again. 

There were a number of positive takeaways from the RBA’s SoMP which can be read in full here: 

  • RBA SoMP: Committed to do what it can to support jobs, June unemployment expected at 10%

Key notes

  • RBA forecasts CPI -1% for June, +0.25% dec, +1.25% dec 2021, +1.5% June 2022.
  • RBA forecasts YoY GDP at -8% for June, -6% dec, +6% dec 2021, +5% June 2022.
  • RBA forecasts unemployment 10% for June, 9% dec, 7.5% dec 2021, 6.5% June 2022.
  • RBA says: Will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3% band. 
  • Says: Under the baseline scenario, unemployment begins to gradually decline from later this year.
  • Says: Trimmed mean inflation is also expected to be lower (but still positive) in the June quarter, to be around 1½ per cent over the year.
  • Says: Ongoing spare capacity in the labour market is likely to result in a period of slower growth in wages and thus labour costs.
  • Says: Given the relatively rapid decline in the number of new COVID-19 cases in Australia, it is possible to contemplate an upside scenario where most domestic restrictions on activity are relaxed a little sooner.
  • Says: Plausible baseline scenario for the outlook in Australia involves the relaxation of domestic activity restrictions over the coming months, with most of these restrictions lifted by the end of the September quarter.
  • Says: Under this baseline scenario, activity and employment begin to recover in the second half of the year.

ASX 200 Index’s seeking out the 38.2% Fibo resistance 

The 38.2% Fibonacci level (5470) has been tested on a couple of occasions and held. The index has been trading between there and the 23.6% Fibo since the end of March. The bears will be looking for an extension below the COVID-19 lows of 4402. However, on a break higher will extend towards a 50% mean reversion at 5794 ahead of a 61.8% golden ration at 6127.