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Dow Pulls Back From Fresh Highs Ahead of FOMC

Dow Pulls Back From Fresh Highs Ahead of FOMC

2018-07-31 14:07:00
James Stanley, Strategist
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Talking Points:

- US equities are pulling back to varying degrees, with the Nasdaq pulling back from last Wednesday’s highs while the S&P 500 and the Dow Jones Industrial Average are retracing from Friday’s high. Tomorrow brings an FOMC rate decision in which the bank is expected to lay the groundwork for another two hikes in 2018, and this could keep the pressure on stocks in the near-term.

- The Dow Jones Industrial Average has started showing lower-lows and lower-highs on shorter-term charts, and while this may not necessarily obviate the bullish approach, it does urge caution from chasing last week’s breakout as a deeper pullback may be in store.

- DailyFX Forecasts are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

Dow Pullback Continues After Friday’s Fresh Highs

The pullback in US equities continues to show to varying degrees across the domestic indices, with tech continuing to pullback from last Wednesday’s highs (just before the abysmal Facebook earnings release) while the S&P and Dow Jones have pulled back from highs established on Friday.

Tomorrow brings an FOMC rate decision, and Friday brings Non-Farm Payrolls. This may not be the time to chase that prior bullish move, as short-term price action is showing lower-lows and lower highs as US indices digest earlier Q3 gains. In the Dow Jones Industrial Average, we’d previously looked into support structure in the effort of trading bullish continuation. The support zone that we’d looked at that was nearest to current prices came into play on Friday morning, helping to produce a bounce that held into yesterday. But a wave of selling showed up shortly after the US open to push the Dow down to a fresh near-term low:

Dow Jones Hourly Price Chart: Lower Lows, Lower Highs

dow jones industrial average hourly price chart

Chart prepared by James Stanley

At this stage, the pullback would likely be considered too minor or too new to illicit a longer-term bearish thesis; but this could be used to push pause on the bullish continuation approach with traders instead shifting their attention to deeper areas of potential support. The Dow just set a fresh five-month high last week, and given the fact that we have an FOMC rate decision with the wide expectation that the Fed will lay the groundwork for another two hikes this year, and there may be greater potential for a deeper pullback in the index before the longer-term bullish trend is ready to come back into order.

The area that runs from the approximate 25,163 up to 25,218 could be interesting for such a scenario. This was a group of prior swing highs in mid-July that became support a week later. We also have a bearish trend-line projection running in the same area, which can be found by connecting the June swing high to the July 18th swing high.

If this doesn’t hold, the psychological level around 25,000 becomes the next logical stop to look for higher-low support, and if this area doesn’t contain the lows, the prospect of bearish strategies can soon come back into play.

Dow Jones Four-Hour Price Chart: Deeper Support Potential as FOMC Nears

Dow Jones Four-Hour Price Chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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