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US30 - Drops Sharply to Below 26000 on Fed Cut and Trade Wars



US30 - Drops Sharply to Below 26000 on Fed Cut and Trade Wars
In the last week the US30 Index has suffered its largest falls this year dropping sharply from near its all time highs down to its lowest levels in two months near 25000. It has recovered a little to rally back towards 26000 but now looks likely to struggle to return to its previous highs. Prior to the fall and for the last few weeks, the US30 index 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 now finds itself back trading around that level attempting to move higher. Despite its excursion below 25000 in late May, 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.

As widely tipped, the U.S. Federal Reserve (Fed) cut interest rates for the first time in more than 10 years last week as a pre-emptive move as concerns rise about a slowing global economy and the impact of the trade wars.  However it was two words from Fed Chairman Jerome Powell that rocked the financial markets, as he said the Fed’s first rate cut in a decade does not mean policymakers will follow up with an aggressive rate-reducing regime.  Mr Powell called the cut a “midcycle adjustment” and described it as the latest move in a policy transition that started with its last rate rise, at the end of last year.  U.S. President Trump vowed to impose more tariffs on Chinese imports, which are due to take effect on 1st September.  The 10% tariff would be imposed on $300 billion of Chinese imports and could raise tariffs further if China’s President Xi Jinping failed to move more quickly toward a trade deal.  The tweet has only served to intensify the trade war between the world’s top two economies, as the announcement extends U.S. tariffs to almost all imported Chinese products, and China responded by saying they would not accept “intimidation or blackmail”, promising countermeasures.  China have since responded by allowing its currency to slide below the key 7 yuan to the dollar level, for the first time since 2008.  China also stopped new purchases of U.S. agricultural products, according to state run media.

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