The recent Non-Farm Payrolls (NFP) report exceeded expectations, extending its impressive winning streak to 14. However, a closer look at the report reveals some less positive aspects. The unemployment rate experienced its largest month-over-month increase since the pandemic, rising from 3.4% to 3.7%. Additionally, the average workweek hours showed a slight decline, which is often an indication of potential layoffs. Overall, the report presented a mixed bag of results, offering something for everyone to interpret.
The US ISM Services Purchasing Managers' Index (PMI) came in significantly lower than anticipated at 50.3, narrowly missing the threshold for contractionary territory. The employment sub-index reflected a contraction, while the prices paid sub-index experienced a substantial decrease, returning to levels last seen in May 2020. Consequently, this prompted the market to further discount the likelihood of additional interest rate hikes by the Federal Reserve (Fed).
In recent days, the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) surprised markets with rate hikes, potentially influencing risk sentiment. This may have led to concerns that the Fed might follow suit, although it seems unlikely considering the Fed typically responds to market pricing, and the Consumer Price Index (CPI) report has not yet been released.
Dow Jones Technical Analysis – Daily Timeframe
On the daily chart, the Dow Jones rallied strongly after the NFP report as the price broke out of the trendline and momentum buyers jumped onboard to extend the move towards the 33854 swing high resistance. Since tapping into that resistance, the Dow Jones pulled back into the blue 8 moving average as the price was a bit overextended after the rally. The moving averages have now crossed to the upside which may signal a change in trend.
Dow Jones Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see a good support zone at 33330 where the Dow Jones may pull back into before deciding where to go next. In fact, we can find the confluence of the previous swing high as resistance, the 50% Fibonacci retracement level and the daily 21 moving average.
This is a strong zone indeed, technically speaking. The buyers are likely to lean on this support with a defined risk just below it and target the breakout of the 33854 resistance. The sellers, on the other hand, will want to see the price breaking lower before piling in and extend the eventual selloff towards the 32684 support.
Dow Jones Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the above mentioned setup. From a risk management perspective there’s nothing to do at the moment as the Dow Jones might even range awaiting the CPI and FOMC events next week.
The US Jobless Claims report is the key risk event to monitor today. However, its impact on the market is likely to be limited unless there are significant deviations from the expected numbers:
- If the report significantly beats expectations, it could instil a sense of cautious optimism in the markets. A strong performance in the labour market, coupled with a cooling trend, might suggest a soft landing scenario, potentially aiding in bringing inflation closer to the target.
- Conversely, if the report misses expectations in a big way, it could dampen market sentiment and potentially trigger a decline in the Dow Jones. Such a scenario might reignite fears of an economic recession, which could have negative implications for market performance.
