Dow Jones index meanders around 34,500 on Quadruple Witching Day

June 16 is Quad Witching Day as quarterly and monthly options and futures expire.
The Dow Jones index should experience higher than average volatility on Quad Witching Day.
Michigan Consumer Sentiment Index, released on June 16, is expected to be positive.
DJIA is trading within the 34,250 to 34,600 resistance band.

Friday, June 16, is the day you’ve all been waiting for: Quad Witching Day. Stock index futures, stock index options, stock options, and single-stock futures derivatives contracts all expire at the closing of Friday’s session, so volatility and higher volumes are to be expected. The Dow Jones Industrial Average (DJIA) rebounded on Thursday to close up 1.26%. This was its largest gain since June 2, the large-cap index has been steadily reducing the distance between it and the 1-year high in recent weeks.

At the time of writing in Friday’s regular trading, Dow futures are up 0.21%, with S&P 500 and NASDAQ futures are marginally green.

Dow Jones Index News: Quad Witching to boost volatility

If you’re a nerd, you’re probably screaming about Quad Witching Day no longer being extant. That is true. What is popularly called Quad Witching (Quadruple Witching) since 2020 has been Triple Witching. This is because single-stock futures ended in the US markets at that time. However, they do still trade outside the US.

However, index options, index futures and stock options still expire once every quarter, and this quarter that day is June 16. As traders and institutional investors close out many of their options and derivatives contracts, or roll them into new contracts, typically these Quad (Triple) Witching days offer higher levels of overall volumes in the market. These high volumes can lead to higher-than-average volatility as well. To be sure, much of this volume is in the options and futures markets, not the normal equity market.

Still, an index like the Dow Jones Industrial Average still often witnesses some gyration in price action. During the last Quad Witching Day on March 17, the Dow dropped 1.19%.

Michigan Consumer Sentiment Index picks up, supports Dow Jones

University of Michigan's Consumer Sentiment Index came at 63.9 in June, improving from 59.2 from in May and beating market consensus at 60. It is the second consecutive time this indicator beats expectations, continuing the modestly positive trend in consumer behaviour after this index touched bottom at 50 one year ago. The rising consumer confidence provides support to the US stock market indexes, including the Dow Jones Industrials Average, slightly above 34,400.

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

Dow Jones forecast

The Dow Jones index thrust its way this week into the resistance zone that spans 34,250 to 34,600. Closing at 34,408 on Thursday, means the Dow index could require a few more session to break above the top of the resistance zone. Of course, the index has only traded above the top of this resistance zone one time in the past year. That was December 13, 2022, when a quick surge to 34,712 flopped, and the index promptly sold off all the way to 33,890 by the end of that session.

This history puts the DJIA in a precarious position then at the moment. Bulls want to see a new 1-year high above 34,712 but know this region commonly launches month-long downtrends. If bulls can make it through this thicket to a new 1-year high, then the next challenge will be the 35,200 to 35,750 resistance band that experienced plenty of price action and volume between October 2021 and April 2022.

DJIA daily chart

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