We keep hearing from various members of the Federal Reserve the need for additional data before determining the extent of tightening measures. Although most of them anticipate two further rate hikes this year, they consistently emphasize that these decisions depend on the data. Just yesterday, Fed Chair Powell reiterated that the economy remains resilient and that the possibility of two consecutive rate hikes cannot be ruled out if the labour market maintains its strength.
The data we saw after the recent FOMC meeting strengthens the notion that we may indeed see additional rate hikes. The housing market data surprised to the upside, the US Jobless Claims remain steady, the US Services PMI shows continued expansion, and the latest Consumer Confidence report was very strong. Naturally, a lot will depend on the upcoming NFP and CPI reports. However, if we continue to see such positive data, the Fed will indeed raise rates twice instead of the current market expectation of a single increase in July.
Dow Jones Technical Analysis – Daily Timeframe
On the daily chart, we can see that the failed break above the 34477 resistance led to a bigger pullback into the red 21 moving average where we are seeing some buyers stepping in. If the price breaks below the moving average, we can expect the Dow Jones to fall into the 33448 support level where we can also find the 61.8% Fibonacci retracement level. That should be an even better level for the buyers to position for more upside.
Dow Jones Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the whole rally since the 33448 level was diverging with the MACD. This is generally a sign of weakening momentum often followed by pullbacks or reversals. Given that the price made a new lower low when it broke below the 34085 level, we can expect the price to fall back into the 33448 support before we see another rally.
Dow Jones Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the recent bounce stalled near the 38.2% Fibonacci retracement level of the entire pullback from the 34889 high and started to roll over. If we see the price breaking below the recent swing support at 34060, we should see more momentum sellers jumping onboard and target the 33448 support. On the other hand, if the price breaks above the 38.2% Fibonacci retracement level, we should see more buyers piling in and target a new high.
We have two important reports to conclude the week: today's US Jobless Claims and tomorrow's US PCE report. The market reacted positively to good labour market data and benign inflation reports; thus, it is reasonable to anticipate a similar reaction if we get similar results. Conversely, if we see weak labour market data, it could potentially ignite recession concerns and lead to a decline in the market.