Source: PaxForex Premium Analytics Portal, Fundamental Insight
The September NFP report released last Friday confirmed that the US Federal Reserve is nowhere near the end of its monetary tightening policy. Comments from Fed members confirmed that their sole focus remains to bring inflation under control, and they communicated more pain for financial markets ahead. The terminal rate, or the one where market participants believe the central bank will stop raising rates, is presently near 4.60%, but some analysts have it at 5.50%. One former Fed member suggested 8.00%, which is highly unlikely given current trends but not entirely off the table if inflation follows the pattern of the 80s.
Yesterday’s CB Employment Trends Index for September surprised to the upside, confirming a tight labor market, which adds wage-based inflationary pressures. Despite the sharp drop in energy prices, a move partially reversed over the past two weeks, inflation continues to march higher. It confirms the widespread impact of inflation across the economic pipeline and outside of volatile food and energy. The US Fed will continue to tighten monetary policy, including the unprecedented quantitative tightening (QT), which acts as stealth interest rate increases.
Today’s economic calendar is light, which could allow the downtrend to continue as it represents the path of least resistance. Earnings season will provide the next significant catalyst. A record number of companies began noting the negative impact on their business from a strong US Dollar. It will provide ongoing downside pressure on asset prices, fueling the downward spiral across financial markets. The Dow Jones 30 may experience brief bull traps and bear market rallies, but the broad trend remains on the downside, with another 20% drop a growing possibility.
The forecast for the Dow Jones 30 remains bearish, but volatility could spike after the Kijun-sen, and the Kijun-sen, turned sideways while bulls attempt to prevent bears from reaching fresh bear market lows. Adding to downside pressure is the descending Ichimoku Kinko Hyo Cloud. Traders should monitor the CCI after it recorded a lower high following a breakout from extreme oversold territory before reversing. It has plenty of downside potential and could correct into a lower low. Can bears continue their dominance over price action and force the Dow Jones 30 into its horizontal support area and a new 2022 and bear market low? 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 28,580 to 29,515 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 29.075
- Take Profit Zone: 26.060 – 26.535
- Stop Loss Level: 30.625
Should price action for the Dow Jones 30 Index breakout above 29,515, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 30.625
- Take Profit Zone: 31.550 – 32.225
- Stop Loss Level: 29.515
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