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Higher interest rate reality stops the equity bull run

Dow Jones Index

The Dow Jones Index fell significantly last week as US Fed Chairman Jerome Powell testified that he expects two more interest rises before the end of the year. In addition, the Bank of England raised official interest rates by 0.25%, reminding investors of the attraction of moving their capital from stocks to cash.

In positive news, Treasury Secretary Janet Yellen said she now sees a lower risk of US recession. The failure to rise above the 2023 high earlier this month has confirmed the medium-term range and encouraged profit-taking selling last week.

The week ahead sees Powell speak to Congress, and the important data releases will be US Durable Goods on Tuesday and US GDP along with PCE Price Index on Friday. While the Dow fell more than expected as technical traders sold when the index fell below the 10-day moving average, support is expected to return this week. Range trading looks to be the best strategy in the week ahead for short-term traders, and medium-term traders could find buying opportunities on weakness.

Dow Jones index daily June 26

Resistance: 34000, 34155, 34500, 34590, 35000

Support: 33425, 33000, 32550, 31750

Nikkei Index

Profit taking on higher global interest rates broke the long streak of weekly gains for the Nikkei index last week. Resistance at 34,000 encouraged investors to exit some of their stock holdings and wait for lower levels to return to the market.

Japan`s CPI inflation data showed prices had risen 3.2% in May from a year earlier, slightly above expectations of 3.1%. Core consumer inflation is still above the Bank of Japan`s 2% and shows no sign of decreasing, so there is an increased chance of a more hawkish monetary policy which is bearish for equities.

Given how far the Nikkei index has risen since March 2023, it is hard to predict how far it could fall from here. The week ahead should see increased volatility as bulls and bears battle for control so short-term traders can find many range trading opportunities. Medium-term traders should find value in shorting the market around these levels.

Nikkei index daily June 26

Resistance: 34000, 35000

Support: 31650, 30800, 30500, 30000