Amidst a backdrop of heightened inflation concerns, the Dow Jones Futures (CME: YM) surged to new heights in Tuesday’s trading session, defying expectations and capturing the attention of investors worldwide.
Despite a sharper-than-anticipated rise in the consumer-price index, which climbed 3.2% compared to the same period last year through February, optimism remained palpable in the markets. This marks the second consecutive month that the crucial inflation gauge has outpaced economists’ forecasts, yet the response from investors has been resolute.
With a week-to-date gain of 70 basis points, the Dow Jones Futures index is on track for back-to-back weeks of substantial growth if it maintains its current trajectory. Traders are eagerly monitoring the possibility of interest rate adjustments, undeterred by the slightly elevated CPI inflation print. As reflected by the CME FedWatch Tool, market sentiment indicates a 66% probability of a rate cut come June, a mere 500 basis points lower than the pre-CPI data release. This resilience underscores the persistent expectations within the market for accommodative monetary policy measures.
Technical
The Dow Jones Futures exhibit a strong uptrend, characterized by an ascending channel pattern and trading above the 100-day moving average, indicating positive market sentiment.
Notably, support has been established at the 38478 level, coinciding with the lower boundary of the channel and an oversold RSI condition. Recent upside momentum propelled the index futures to a new peak at the 39546 level. However, caution is warranted as overbought RSI conditions have emerged, signalling a potential weakening of the upward momentum. Indeed, the index futures have begun to retreat from this peak, indicating a possible reversal in the short term.
Should a sustained downturn occur, the 100-day moving average could act as a significant intermediate support level. Conversely, a resurgence in upside momentum could result in a retest of the 39546 level, potentially leading to a test of the channel’s upper boundary.
Summary
Despite inflation concerns, Dow Jones Futures surged to record highs, reflecting investor optimism and expectations of accommodative monetary policy. Technical analysis shows a strong uptrend, supported by the 100-day moving average and the 38478 level. Caution is advised with overbought conditions, potentially signalling a short-term reversal.
Sources: Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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