Recent sessions have set US equities into motion as an influx of data prompts continuous adjustments to the market’s outlook on the Federal Reserve’s rate cut timeline for 2024. The latest development stems from robust retail sales data reported on Wednesday, surpassing expectations and triggering three consecutive days of decline for Dow Jones futures (CME: YM).
Year-over-year retail sales growth surged to 5.6%, up from the previous 4%, introducing a shift in market dynamics. Consequently, the CME FedWatch Tool now indicates a 60% chance of a rate cut by the Federal Reserve in March, marking a decline from the over 70% probability noted just a week ago. The strengthening greenback has reclaimed ground at the expense of the equity market.
Looking ahead, the anticipation is for additional data to persistently influence market sentiments, creating opportunities for traders as the landscape continues to evolve.
On the 4H chart, a falling wedge pattern emerged, and the Thursday session teased a bullish breakout. However, the 25-SMA (green line) trades below the 50-SMA (blue line), indicating a bearish tilt in the market, and with low volume, the breakout failed to sustain.
The retracement is currently retesting the breakdown level of the wedge around 37,432, and the price action around this level could provide a potential signal of the market’s direction going forward. If the futures continue to move lower, the price could fall back within the wedge pattern, signalling a false breakout, which could bring lower support at 37,314 into the picture.
Alternatively, if the futures bounce off the breakout level to the upside, it could confirm the initial breakout. Resistance at 37,471 could need clearance in the upcoming sessions before 37,523 presents an additional hurdle to cross. However, any movement above this resistance could open a path for convergence with the 25-SMA near resistance at 37,607.
The Dow Jones futures remain on the back foot as a slew of incoming developments has forced the market to pare its bets of aggressive rate cuts in the opening half of the year. While a breakout occurred from the falling wedge pattern, the current retracement could force the price back within the pattern, potentially leading the futures lower toward 37,314.
Sources: Koyfin, Tradingview, CME Group
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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