11:35, 03 July

Daily Analysis

Near All Time High above 26800 as Fed May Pause on Rates

In the last couple of weeks the US30 index has consolidated a little in a narrow range roughly between 26500 and 26900, which is little surprise after its price action over the few weeks beforehand. Several weeks ago the US30 index rallied strongly to return to back above the 25000 level and continue beyond another key level in 26000 to reach a then one month high, before consolidating a little and enjoying some support from 26000. It then surged higher again to get very close to its all time high set last year, before easing a little.
Given the significance of the 26000 level, there was little surprise that the index enjoyed some support from this level as it consolidated and it may do so again should the index fall further from its present levels. 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.

According to Cleveland Fed President Loretta Mester, the Federal Reserve (Fed) can afford to stand its ground on interest rates while it watches how challenges to economic growth unfold.  The markets are expecting and almost demanding that the Fed cut interest rates however she said she holds a “positive baseline outlook” on the economy although she is monitoring risks to determine the central bank’s next move.  “At the present time, I believe it is too soon to make that determination, and I prefer to gather more information before considering a change in our monetary policy stance,” Mester said, noting that the expansion has proven “resilient to a variety of shocks, headwinds and uncertainties” that ultimately have reversed.  This year Mester is a non-voter on the Fed’s Federal Open Market Committee (FOMC), however she is still able to offer input into its decisions. Over the last few years, she has been one of the more hawkish members of the Fed.Investors have been worried over slowing global growth, low inflation and the impact of the U.S.-China trade battle, which Mester said has had “relatively modest” effects though the “concern is growing.