Source: PaxForex Premium Analytics Portal, Fundamental Insight
Geopolitical risks remain in the headlines, but inflation presents a longer-term threat to financial markets. More market participants believe the US Federal Reserve can manage a soft landing, lowering inflation by raising interest rates without triggering a recession. They place faith in the institution which last year dismissed inflationary pressures as transitory, failing to act, fueling price increase for consumers and business, and falling further behind the curve.
Traders will carefully monitor the first-quarter earnings season, which will dominate next month's trading action. Second quarter and full-year guidance can move individual names and reflect broader market sentiment. CPI, PPI, CPI, and wages will remain front and center. They may witness moderate declines month-over-month, but annualized inflation can remain elevated well into 2023. Misplaced optimism in a central bank that failed to acknowledge inflation as a threat out of fear of harming the economy can trigger an economic slowdown. Stagflation, the worst possible outcome, remains a risk financial markets are unwilling to recognize.
A surge in global Covid-19 cases remains ignored, but the effect on supply chains will further apply upward pressure on prices, fueling inflation. Ignoring issues does not make them disappear, and the global economy will have to deal with the consequences. The tech-heavy NASDAQ 100 remains the most vulnerable to higher interest rates, and traders should not dismiss a sell-off into its 2022 lows after two weeks of bottom-fishing. Trading is likely to remain choppy ahead of the official start of earnings season, why misplaced optimism can pressure prices moderately higher, offering traders a higher-quality short-entry opportunity.
The forecast for the NASDAQ100 turned bearish after price action advanced into its descending Ichimoku Kinko Hyo Cloud. Traders should expect a spike in volatility as bulls and bears fight for control over the next move. The Tenkan-sen remains in an uptrend, but the Kijun-sen shows signs of exhaustion and chartered a course to flatline, which would confirm the lack of short-term bullish momentum. After the CCI briefly moved into extreme overbought territory, it reversed. The breakdown below 100 could trigger another sell-off. Can bears capitalize on recent gains and force the NASDAQ100 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 NASDAQ 100 Index remain inside the or breakdown below the 14,445 to 14,850 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 14.680
- Take Profit Zone: 12.945 – 13.315
- Stop Loss Level: 15.195
Should price action for the NASDAQ 100 Index breakout above 14,850, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 15.195
- Take Profit Zone: 15.890 – 16.115
- Stop Loss Level: 14.850
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