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09:58, 31 juillet

Daily Analysis

In the last three weeks the US30 index has remained close to its all time high set around two weeks ago, after it has surged higher in the last month or so. Several weeks ago, the index consolidated a little in a narrow range roughly between 26500 and 26900, and it has used that period of consolidating to great effect pushing higher to the new highs. The consolidation is also of little surprise after its price action over the few weeks beforehand.
In early June 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. 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 saw 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. 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.

In the last three weeks U.S. equities have climbed to a record high on solid expectations that the U.S. Federal Reserve (Fed) will soon cut interest rates for the first time in a decade.  There appears to be some uncertainty over why the Fed would cut rates so shortly after aggressively raising them (eight times since 2016), with the most recent rise in December 2018.  Some argue that the Fed raised rates too much and too quickly and have erred by doing so.  Having said that, the Fed is expected to cut interest rates for the first time in more than 10 years later today, which will be a pre-emptive move as concerns rise about a slowing global economy and the impact of the trade wars.  According to Refinitiv, this Friday’s July jobs report should show that the U.S. economy is still strong, with 170,000 nonfarm payrolls being added and an extremely low unemployment rate of 3.7%.  Despite the markets entrenched in earnings season, it is the Fed that is likely to have the most market impact, and strategists are looking for the central bank to signal it is open to future cuts but not necessarily promising them.  Economists generally expect anywhere from one to three rate cuts this year, but there is near consensus that this first cut will be a quarter percentage point.