Source: PaxForex Premium Analytics Portal, Fundamental Insight
Following three weeks of gains from depressed levels, the Dow Jones 30 ended its advance and initiated the first phase of a potentially broader reversal. Markets appreciated last Friday’s NFP report, despite missing expectations, which also increased the potential for a 50 basis point increase during the next central bank meeting. The Federal Reserve remains behind the inflationary curve after failing to realize inflationary pressures during the height of the Covid-19 pandemic, falsely labeling them transitory, despite signs to the contrary.
Supply chain bottlenecks keep upside pressure on raw materials, fueling inflation. The NFP report indicated a smaller increase in average earnings, leaving less disposable income for consumers. It adds to recessionary risks, a topic hotly debated with financial markets under pressure. The 5-year-30-year US yield curve inverted last week, a tested harbinger of a recession or economic distress. Traders should not ignore the warnings of more downside pressure during the second quarter.
Earnings season could add a volatility spike as investors comb through thousands of earnings reports to gauge how inflation and the ongoing labor shortage impacted operations last quarter while focusing on future guidance. The Covid-19 pandemic, while forgotten by many, continues to pose a threat, and traders should not dismiss the surge in global cases and how they may impact the supply chain, especially in China. The risks for financial markets in April remain to the downside. Traders should carefully monitor price action if it approaches 2022 lows for a retest of support.
The forecast for the Dow Jones 30 remains bearish after price action was unable to extend the brief move above its descending Ichimoku Kinko Hyo Cloud. Confirming the absence of bullish momentum are the flat Kijun-sen and Tenkan-sen. Adding a bearish signal is the CCI, which formed a negative divergence in extreme overbought territory, followed by a breakdown. Traders should monitor this technical indicator for a move below 0, from where more selling is likely. Can bears gain momentum and force the Dow Jones 30 into its horizontal support area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for the Dow Jones 30 Index remain inside the or breakdown below the 34,590 to 35,045 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 34.830
- Take Profit Zone: 32.230 – 32.680
- Stop Loss Level: 35.390
Should price action for the Dow Jones 30 Index breakout above 35,045, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 35.390
- Take Profit Zone: 35.845 – 36.050
- Stop Loss Level: 35.045
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