US30 - Rallies Back Above Key 26000 Level Again as Markets Expect More Cuts

In the first week of July, the index consolidated a little in a narrow range roughly between 26500 and 26900, and it 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.

As widely tipped, the U.S. Federal Reserve (Fed) cut interest rates for the first time in more than 10 years two weeks 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.  However the markets are now expecting the Fed to keep cutting this year and beyond as economic indicators weaken and trade tensions escalate.  Alarmingly, economists now see the possibility of three quarter-point rate reductions before the end of the year, to be followed with additional moves in 2020.  This is likely to happen until it becomes clear that the Fed has fought away recession. “Slower growth and rising risks will likely impel the Fed to cut rates further,” UBS economist Seth Carpenter said in a report for clients. “Although we saw little support from the [Federal Open Market] Committee for further cuts at the July meeting, trade developments should provide enough justification to cut in September."