Source: PaxForex Premium Analytics Portal, Fundamental Insight
Today’s trading session features no market-moving economic releases, and traders may attempt to recover from Friday’s losses during the opening hours. Traders should monitor price action during the last hour of trading, where global indices could accelerate to the downside on increased trading volume. Economic data confirm a slowing economy, despite Friday’s moderately better than expected US NFP report. Average hourly earnings cannot keep up with inflation, meaning workers make more money but can afford less, which is a negative for economic activity.
The US Federal Reserve began quantitative tightening after swelling its balance sheet above $9 trillion. QT combined with interest rate increases at each of its remaining 2022 meetings, two 50 basis point hikes followed by, potentially, 25 basis points, monetary conditions will tighten further. Inflation is likely to moderate from 40+ years highs but remains elevated for years to come, following reckless monetary policy between 2009 and 2021. Financial markets fail to accept the risk of a recession or extended stagflation. It could drag on throughout the decade, similar to the 70s and early 80s.
PMI reports for May show economic activity cools faster than expected, and many companies released dire outlooks and cut profits and earnings expectations. Supply chain bottlenecks remain, and a likely surge in Covid-19 infections over fall and winter will disrupt them with China’s zero Covid-19 tolerance, keeping upside pressures on prices into 2023. A recent survey of US households revealed that 48% of families could not provide sufficient food, and parents skip meals to feed their children. They admitted to cutting into savings, suspending investments, and retirement contributions, to survive day by day. It confirms that half of US consumers live in depression, which can fuel the current bear market for years to come.
The forecast for the Dow Jones 30 remains bearish as price action nears the completion of its bear market rally. Traders should expect more volatility after the ascending Tenkan-sen moved above its flat Kijun-sen while the descending Ichimoku Kinko Hyo Cloud entered a sideways trend. It is a typical development for a bull trap. The CCI completed a breakdown from extreme overbought territory, and traders should wait for a collapse below zero before entering their sell orders. This technical indicator has plenty of downside potential. Can bears force bulls and 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 32,510 to 33,320 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 33.025
- Take Profit Zone: 30.635 – 31.225
- Stop Loss Level: 33.860
Should price action for the Dow Jones 30 Index breakout above 33,320, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 33.860
- Take Profit Zone: 34.360 – 34.620
- Stop Loss Level: 33.320
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