Dow Jones Technical Analysis

The Federal Reserve surprised market expectations with a slightly more hawkish stance by keeping interest rates steady at 5.00-5.25%, which was in line with forecasts, but revising the projected terminal rate in the Dot Plot by adding 50 basis points. The Fed opted to pause at this meeting to gather more economic data before making a decision on a possible interest rate hike at the July meeting.

This decision seems reasonable considering the underwhelming details in the most recent Non-Farm Payrolls (NFP) report and some further disinflation indicated in the latest Consumer Price Index (CPI) report, although the core readings remain persistently high.

During the press conference, Fed Chair Powell indicated that the July meeting is "live," but he avoided making any pre-commitments. Initially, the market reacted with a decline when the Dot Plot was released, but it quickly regained its losses and returned to pre-announcement levels once Powell began his press conference.

This overall scenario demonstrates that the Federal Reserve is prepared to take additional measures to combat inflation, but it hinges on the incoming economic data.

Dow Jones Technical Analysis – Daily Timeframe

On the daily chart, we can see that after bouncing on the key 32684 support and breaking out of the downward trendline, the Dow Jones rallied strongly into the key 34477 resistance level. The price pulled back since tapping into the resistance as we probably got some profit-taking before the FOMC decision.

If the Dow Jones manages to break above the resistance, we can expect the price to reach the 35289 high next. On the other hand, if the price falls below the 33854 support, we could see the price getting back to the 32684 level.

Dow Jones Technical Analysis – 4-hour Timeframe

On the 4-hour chart, we can see that we have a divergence with the MACD right into the key resistance. This is generally a sign of weakening momentum often followed by pullbacks or reversals. From a risk management perspective, the buyers should be leaning on the 33854 support where we can also find the 61.8% Fibonacci retracement level.

This would give them a better risk to reward setup. The sellers, on the other hand, will want to wait for the price to break below the 33854 support before piling in and extending an eventual selloff into the 32684 level.

Dow Jones Technical Analysis – 1-hour Timeframe

On the 1-hour chart, we can see that on a more short-term basis, the price has made a new lower low yesterday breaking below the previous 34327 higher low. If the 33854 is indeed the target for the pullback, we should see some aggressive sellers piling in here in anticipation of a breakout of the 33854 level. The buyers will need to break above the 34477 resistance to invalidate the short-term bearish setup.

Today, we will have two important reports: the US Jobless Claims and Retail Sales. Tomorrow, we will see the University of Michigan Consumer Sentiment survey. A significant miss in Jobless Claims could potentially unsettle the market, indicating a rapid deterioration in the labour market. Conversely, if the figures exceed expectations, it should help sustain the market's bullish trend.

Additionally, the market will closely monitor the long-term inflation expectations in tomorrow's UMich report, hoping for a lower figure. A higher reading could imply a possible de-anchoring of inflation expectations, which may raise concerns.