The Nasdaq 100 Futures (CME: NQ) market experienced heightened volatility as inflationary pressures challenged the Federal Reserve’s monetary policy landscape.
March’s inflation report, exceeding expectations by ten basis points to 3.5%, has cast doubt on the near-term possibility of interest rate cuts. Following February’s 3.2% reading, this unexpected rise presents a significant hurdle for the Fed’s previously communicated dovish stance.
Market participants, anticipating a potential easing of monetary policy in June 2024, are now re-evaluating their positions. The Fed’s projections, reflected in the dot plot, indicated two potential rate cuts this year. The recent inflation uptick, coupled with ongoing geopolitical tensions and rising energy prices, has pushed back expectations of a June cut to September. Wednesday’s trading session witnessed a significant decline of 89 basis points in the Nasdaq 100 Futures, reflecting the market’s reassessment of the Fed’s policy trajectory. Looking ahead, traders will closely scrutinise key data points such as the U.S. Producer Price Index (PPI) and upcoming speeches by Federal Reserve officials, seeking clarity on the central bank’s path forward.
Technical
The Nasdaq 100 Futures are currently ensnared in a short-term downtrend, as evidenced by their trading position below the 100-day moving average since last week.
Despite this bearish trajectory, a formidable support level emerged at 18053.25, showcasing resilience against breach attempts amidst heightened selling pressure on two separate occasions. This support signifies a critical juncture where demand for the index futures surpasses supply, as indicated by notable buying activity propelling the index from this level. Following the recent selloff, a rebound occurred, highlighting the support level’s significance in arresting downward momentum.
Should bullish sentiment persist, attention may turn towards testing the 61.80% Fibonacci Retracement Golden Ratio level, signifying potential upside momentum. Conversely, a resurgence of selling pressures could precipitate a retest of the established support level, potentially exacerbating downward movements.
Summary
The Nasdaq 100 Futures face uncertainty amid inflationary pressures, delaying rate cut expectations. A short-term downtrend persists, with 18053.25 serving as a crucial support. Further movement hinges on key data releases and Fed speeches, impacting market sentiment and technical levels.
Sources: Federal Reserve, CME, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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