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Dow Jumps Back-Above 25k as Powell, FOMC Adapt to Global Risks

Dow Jones Talking Points:

- US equities are ripping-higher on the back of a speech from FOMC Chair, Jerome Powell. This took place at Noon ET, and as discussed earlier this morning, markets appeared to be setting up for a softer stance from the head of the world’s largest Central Bank.

- The big item of interest was Chair Powell’s comments regarding the ‘neutral rate,’ which is a theoretical interest rate level at which policy would be neither stimulative nor supportive. In early-October, Chair Powell said that the FOMC was ‘a long way’ from this level, alluding the more rate hikes and tighter policy in the years ahead as the bank tried to find this ‘goldilocks’ level for interest rates. But, that speech on October 3rd marked a top in stocks, and the following seven weeks turned into a troublesome period for equity bulls.

- At today’s speech, Chair Powell said that the FOMC was ‘just under’ the neutral rate, which is quite a bit different than what was heard in early-October. This is also less-hawkish, and in short-order the US Dollar dropped as US equities jumped to fresh weekly highs. At this point, we have to ask whether Mr. Powell just successfully removed the biggest pressure point for global risk markets.

- DailyFX Forecasts on a variety of currencies and indices such as the US Dollar or the Euro and 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.

It’s been a brisk day for US stocks as equity indices have put in strong recovery moves following comments from FOMC Chair, Jerome Powell. Mr. Powell spoke at the Economic Club of New York today in a highly-watched speech as market participants around-the-world tried to glean a clue as to just how aggressive the bank might be in 2019 and thereafter.

This had become a major contention of recent: While US stocks jumped-higher throughout Q3 and all of the Dow, S&P 500 and Nasdaq 100 set fresh all-time-highs in the opening days of October, a stark change-of-pace developed around a speech from FOMC Chair Jerome Powell on October 3rd. This is when the head of the world’s largest Central Bank opined that the FOMC was ‘a long way’ from the neutral rate, which is the deposit rate at which policy is neither stimulus nor restrictive. This is somewhat of an elusive, theoretical level, but the simple fact that it appeared nowhere near current rates frightened market participants; as this could lead to an even longer, more aggressive path of future rate hikes out of the Fed.

In short order, stocks began to pullback from those all-time-highs, and just a couple of weeks into Q4, a bigger-picture sell-off began to show up. October price action saw almost the entirety of the Dow’s Q3 gains erased, and a recovery began to show in early-November. But even that was stopped short around the FOMC rate decision earlier this month, and sellers were soon pushing back down towards 24k on the Dow.

Dow Jones Daily Price Chart

djia dow jones daily price chart

Chart prepared by James Stanley

At today’s speech at the Economic Club of New York, Chair Powell struck a markedly different tone than what was heard on October 3rd. While Mr. Powell had alluded to the neutral rate as being ‘a long way’ off in early-October, today he said that rates were ‘just under’ this level – alluding to a softened, more cautious stance at the FOMC.

In short order, the US Dollar dropped down to support and US equities continued a strong rally, with the Dow Jones Industrial Average jumping back-above the 25k psychological level.

Dow Four-Hour Price Chart: Back Above 25k on Powell Speech

djia dow jones four hour price chart

Chart prepared by James Stanley

US Stocks – Is the Worst Over?

In yesterday’s webinar, I mentioned that US stocks appeared to be setting up for bullish reversals. The remaining factor was today’s speech, which came out rather constructively for equity bulls. The big question, at this point, is whether those other worries develop into something larger. This could be taken from any of the Brexit, EU-Italy or trade war concerns. But – these are the same worries that were sitting underneath the market throughout Q3, so this may not be a total hindrance to a return of equity strength out of US bourses.

In the Dow, the fear at this point would be chasing the move-higher. The same 25,500 level that I’ve been using since mid-August could be re-applied to the chart to illustrate a greater show of strength from bulls. This can be a line-in-the-sand for bullish continuation plays. Alternatively, a pullback to and show of support around 25k could open the door for higher-low support plays, targeting a re-test of that 25,500 level.

Dow Jones Hourly Price Chart

DJIA Dow Jones Hourly Price Chart

Chart prepared by James Stanley

You may also be interested in:

The Dow Spends a Week at Support: Will Bulls Follow-Through?

Equity Forecast for Dow, S&P 500, DAX, FTSE and Nikkei

Day Trading the Dow Jones: Strategies, Tips & Trading Signals

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q3 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