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US30 - Settles Around 28600 as Fed to Approach Inflation Differently

   

 

US30 - Settles Around 28600 as Fed to Approach Inflation Differently
 
In the last week or so, the US30 index has settled in a narrow range around 28600 after breaking through the key resistance level at 28000 and reaching a six month high. Having met such stiff resistance at 28000, it may well now enjoy some support from this level now, should it decline a little from its current range. In the last previous two weeks the US30 index met a concrete wall in resistance from the key 28000 level which had kept a firm lid on any advances from the index. In the two weeks leading up to the resistance, the US30 index moved steadily higher reaching a then six month high just above 28000, forming a solid reversal bar showing a rejection of anything above 28000 as it was sold off quickly moving it back down below this key level.

For a few weeks in July the US30 index meet resistance at another key level of 27000 whilst bouncing off support at 26000. For the most part of the last two months, the US30 index has traded in a range between support at 25000 and resistance at 28000, with the 27000 level also playing a key role in more recent weeks. Should there be no support from the 28000 level, the 27000 level may step in and provide some support to the index.

Throughout June, the index enjoyed solid support from another key level at 25000, while receiving some resistance from 26000 remaining in a range between these levels, up until the break a few weeks ago. Throughout April and May 25000 level had turned away the index on several occasions, reinforcing how significant the 25000 level had become in this period, and it has been able to provide some strong support to the index in the last month or so. Should the index decline further, the 25000 level will be expected to continue to offer support.

Throughout April, the US30 index rallied higher to a one month high near 25000, while the key level of 22500 supported the index. During this period, the US30 index settled right down content to trade right around the 24000 level, with the 25000 level looming above and continuing to offer resistance whenever the index rallied. The US30 index is also likely to receive some support from 22500 should it break back lower through 25000. Since mid-March the US30 index has done very well to regain most of the lost ground, after the significant drop where it moved from all time highs above 29000 down to a three year low near 18000.

At their last meeting, the U.S. Federal Reserve (Fed) decided to keep short-term interest rates anchored near zero, citing an economy that was falling short of its pre-pandemic levels.  Last week the Fed announced a major policy shift, saying that it is willing to allow inflation to run higher than normal to support the broader economy and labor market.  The Fed formally agreed to a policy of “average inflation targeting”, in a shift that Fed Chairman Jerome Powell called a “robust updating” of Fed policy.  That means it will allow inflation to run “moderately” above the Fed’s 2% goal “for some time” following periods when it has run below that objective.  “Many find it counterintuitive that the Fed would want to push up inflation,” Mr Powell said in prepared remarks. “However, inflation that is persistently too low can pose serious risks to the economy.”  The Fed Chairman mentioned that the interest rate level that neither constrains nor pushes growth has fallen considerably over the years and is likely to stay there.  For the last ten years, the central bank has struggled to reach its 2% inflation target, and now Fed officials are hopeful the new approach will change the situation, raising expectations and allowing inflation to float higher as rates remain low.

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The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.

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