In recent trading sessions, the Dow Jones 30 Futures (CME: YM) have embarked on an impressive rally, scaling new heights and signalling a robust uptrend.
Notably, January saw a 71 basis point gain, marking the third consecutive month of positive monthly closures for the index futures. Fuelling this surge has been the strength of earnings results, which have buoyed investor sentiment and propelled the market forward.
However, amidst the optimism looms the threat of inflation and high-interest rates, posing potential challenges to the current upbeat trajectory. The focus now shifts to the latest consumer price index reading as traders keenly assess whether the Federal Reserve may consider rate cuts in response to evolving economic conditions. Should U.S. inflation show signs of slowing beyond expectations, there could be further upside for risk assets, including the Dow Jones 30 Futures, as markets anticipate potential monetary policy adjustments. Conversely, a sharper-than-expected inflationary reading may dampen rate cut expectations, presenting a hurdle to the ascent of risk assets.
Technical
The Dow Jones Futures have been trading in an upward trajectory, as evidenced by their position above the 100-day moving average within an ascending channel pattern.
Recently, the index futures experienced a notable upswing, with a key support level established at 38367, coinciding with the lower boundary of the ascending channel. However, despite reaching a fresh peak at 39012, downward pressures resurfaced, causing a retracement in prices.
Currently, the index futures have retraced to the 38.20% Fibonacci Retracement level. Should downside pressures persist, a breakthrough below this level, especially with high trading volume, could signal the potential for further declines towards the 50% level. On the other hand, if buying momentum prevails, a retest of the 39012 level seems likely, in line with prevailing market sentiment.
Summary
The Dow Jones 30 Futures showcase a resilient uptrend, fuelled by strong earnings and positive sentiment. However, inflationary concerns and high-interest rates pose challenges. Technical analysis reveals pivotal support at 38367 and resistance at 39012, guiding market sentiment amid potential retracements and rebounds.
Sources: Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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