09:45, 22 January

Rallies To One Month High near 25000 as Fed Likely to Pause

After falling to its lowest levels in 18 months below 21,500, in the last few weeks the US30 index has been able to rally well back towards the key 24,000 level where it met several days of resistance before moving higher towards 25,000. This has returned the index back into the range between 24,000 and 25,000 with both of these levels playing a significant role with the index in the few months.
December was several weeks the US30 index would rather forget as it fell very sharply down through any support at the 25,000 level and then also through the 24,000 level down to that 18 month low. As expected the 24,000 level did offer some resistance and it will be interesting to see whether this level props up the index should it decline from its current levels.

In late November it enjoyed a healthy surge higher climbing back above the key 25,000 level to above 26,000 before reversing sharply and falling lower. The last few months have seen the index moving sharply between 24,000 and 26,000 as the volatility and the swings back and forth intensified before the massive drops in December which was the most volatile the index has been in many years.

For several weeks in September the US30 index had been content to trade within a narrow range near 2018 highs under 26200. The 25000 level has been significant as it has offered lots of resistance and would have come as no surprise when it supported the index back in July and August of last year. Around the end of June the index spent several days consolidating above 24000 after a strong fall over several weeks prior to that and this level remains significant.

Kansas City Federal Reserve President Esther George has said that the central bank will need to pause before implementing further rate rises, as it assesses the economy's direction and the impact of its previous policy moves.  "A pause in the normalization process would give us time to assess if the economy is responding as expected with a slowing of growth to a pace that is sustainable over the longer run," George said in prepared speech.  "Failure to recognize these lags could lead to an overtightening of policy, a downturn in economic growth and an undershooting of our inflation objective."  Ms George said Fed officials now have the time to be patient in assessing whether further rate hikes are necessary, a sentiment echoed by others.  "It is possible that some additional rate increases will be appropriate," George added.   "But making that judgment is not urgent and should depend on a careful look at the data and gathering additional insight into where our destination is, how much further we need to go to reach it and how quickly we should get there.  "However she also believes the US economy is doing well and cautioned that the low unemployment rate, currently at 3.9%, may be a sign of inflation.George added that inflation is definitely something she be will be assessing when determining the most appropriate future policy path.