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Favourable conditions continue to push Dow and Nikkei higher

Article background

Nick Goold

Dow Jones Index

Another week of gains for the Dow Jones index as the Federal Reserve raised official interest rates by 0.25% as expected. The Fed meeting had little impact on the market as the Fed chairman disclosed little new information. Also, the US summer vacation period is reducing interest in the market. The market is now predicting no further official interest rate rises for the rest of 2023.

Friday`s inflation release again showed slower inflation than expected, helping the index close the week strongly. The equity market is increasingly confident that higher interest rates will not cause a recession, with June`s US Durable Goods release easily beating expectations.

This week we expect further gains as the 10-day moving average continues to provide strong support below. US payrolls on Friday will follow important US ISM data as the market will likely slow down for the US summer period. While unlikely, a break below the 10-day moving average could trigger swing traders to take profits and present a short-term selling opportunity for day traders.

US30 daily chart July 29

Resistance: 36000, 36500, 37000

Support: 35000, 34600, 33610, 33000, 32550, 31750

Nikkei 225 Index

The Nikkei rose over 1% on the week and now showing signs of resuming its upward trend. The Bank of Japan announced it would increase flexibility around its yield curve control (YCC) target, which created high volatility, with the Nikkei plunging initially only to recover all its losses. As expected, the BOJ raised its inflation forecast and kept short-term interest rates unchanged at -0.1%.

The rebound in the Nikkei Friday was encouraging, and now the 10-day moving average is pointing the market higher. The surge in tourism coming to Japan continues to help the economy, so the Nikkei could be ready to start rechallenging 34,000 resistance. A lack of fresh economic data at the start of the week will likely result in quiet conditions. Looking for opportunities to buy weakness is the preferred strategy this week.

JPN 225 daily chart July 29

Resistance: 34000, 35000

Support: 31650, 30800, 30500, 30000

Great