The Dow Jones Industrial Average (CBOT: YM) is facing a significant headwind after hotter-than-expected inflation data reignited concerns about the Federal Reserve’s monetary policy path. The March Consumer Price Index (CPI) reading came in at 3.5% year-over-year, exceeding analyst expectations and raising doubts about the likelihood of an early rate cut. Minutes from the Fed’s March meeting corroborated these concerns, revealing some policymakers’ anxieties regarding inflation’s progress.
This unexpected inflation data triggered a sell-off on Wall Street, with the Dow Jones losing 1.09% on Wednesday. Equity investors are now reassessing their expectations for rate cuts, with some analysts like Jan Hatzius, chief economist at Goldman Sachs, revising their forecast to two cuts from three in 2024. The market has priced in a diminishing chance of a rate cut in June, with July becoming the more likely scenario.
This shift in market sentiment has negatively impacted interest-rate-sensitive sectors like real estate, which suffered the steepest decline on Wednesday. The focus now shifts to Thursday’s producer price index (PPI) report, which will provide further insight into inflationary pressures. Additionally, the unofficial kick-off of earnings season with reports from major banks like JPMorgan Chase on Friday will be a key event to watch.
Technical Analysis
The 4-hour chart shows that the index is currently trading at 38,759, reflecting a relatively flat price action following the previous session’s losses. The price recently broke below the 20-SMA (green line) and trades beneath the 50-SMA (blue line) and 100-SMA (orange line). The 20-SMA and 50-SMA recently dipped below the 100-SMA, suggesting a potential downtrend. The RSI (32.01) is trending firmly below the 50.00 level, indicating weak momentum and potential for further downside.
A sustained push lower could see initial support at 38,400 tested. A break below this level could bring the 38,108 support level into play. If buyers emerge, short-term opportunities might arise towards the resistance level at 39,178. A break above this resistance could signal a bullish reversal, potentially targeting 39,692.
Summary
The Dow Jones Industrial Average is on shaky ground after a hot inflation report dampened hopes for an early rate cut. The technical indicators are flashing bearish signals, suggesting a potential downtrend in the near term. Thursday’s PPI data and the upcoming earnings season will be crucial factors to watch for further direction.
Sources: TradingView, Trading Economics, Reuters, Federal Reserve, U.S. Bureau of Labor Statistics.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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