11:12, 19 June

Daily analysis

Remains Well Supported by 26000 as Fed’s Williams Calls for Strategy Change

After consolidating a little in the last week above the key support level at 26000, the US30 index has surged higher to a one month high above 26500 in the last 24 hours. In the week leading up to the consolidation, the US30 index rallied strongly to return to back above the 25000 level and continue beyond another key level in 26000 to reach a one month high. Given the significance of the 26000 level, there was little surprise that the index enjoyed some support from this level as it consolidated.
In the couple of weeks prior to the strong rally, the index had reversed and eased lower again falling to a four month low around 24600. Despite its recent excursion below 25000, this level remained likely to offer some support to the index.

The month of May has seen a strong decline for the index moving from a near all time high around 26700 down to its recent four month low. Throughout April and prior to its decline, the index had done well to steadily move higher and finally push through the resistance at the key 26000 level and move to a six month high above 26600. Throughout February and March the US30 index seemed to have been content to trade in a narrow range roughly between 25400 and 26200, before the recent break.

In early February the index consolidated in a narrow range right above the significant level of 25,000 before it began its slow climb higher. It was able to resume what has become a very steady climb higher which started back in December. At the end of January, the 25000 level offered some resistance to the index however this was quickly broken through, only for the level to prop up the index since, and this level remains key.

New York Federal Reserve (Fed) President John Williams said low inflation is a "pressing problem" in developed economies.  The central bank official called for action from the Fed and its counterparts as “low neutral rates are ... here and they’re here to stay.”  He believes central banks need to change their strategy to combat low inflation, which he labelled "a symptom of deeper problems affecting advanced economies."  “In the pre-2008 era, inflation was a major concern for the public and central banks alike,” Mr Williams said in prepared remarks for a speech. “And, while I will always be vigilant about inflation that’s too high, inflation that’s too low is now a more pressing problem.”  The comments have come as markets continue to speculate over the Fed’s next move, but Mr Williams did not address monetary policy in specifics. Mr Williams called on the Fed and other central banks to change their approach to monetary policy.  “Persistently low inflation creates a vicious circle, where expectations of low inflation drag down current inflation.  If inflation falls, central banks will have even less room to manoeuvre when faced with a slowdown,” Williams said. “Starting with monetary policy, central banks should reassess their strategies, goals, and the tools they use to achieve them.”