It’s increasingly evident that the market is taking the weaker labour market data as good news for inflation and the soft-landing scenario. In fact, last week we got many big misses heading into the NFP report, but the US Jobless Claims showed that the labour market is still fine and the NFP beat expectations. We have also got a jump in the unemployment rate, but it was accompanied by a rise in the participation rate and the average hourly earnings surprised to the downside, which is another good news for inflation. The market doesn’t expect the Fed to hike anymore, so the next stop might be the rate cuts. Historically though, the market falls when the Fed starts to cut rates because those generally come in response to a recession.
Dow Jones Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Dow Jones has rallied all the way back to the support turned resistance around the 35000 level. The price is now struggling to break through as the sellers are piling in more aggressively with a defined risk above the resistance to target the 33805 level. The buyers will need the price to take out the resistance to start targeting the all-time high.
Dow Jones Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the rejection from the 61.8% Fibonacci retracement level made the price to print a lower low and the moving averages to cross to the downside. This might be an early signal that the trend is indeed changing, and new lows are coming. The price will need to break below the 34700 support though to confirm the reversal and give the sellers more conviction for another selloff.
Dow Jones Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we had a divergence with the MACD right around the resistance which is generally a sign of weakening momentum often followed by pullbacks or reversals. The price may be forming a descending triangle now and a break on either side of the pattern generally leads to a big move. Therefore, it might be better to wait for a breakout before taking new positions.
Upcoming Events
Today is the US Labor Day so the markets will be closed. This week is pretty empty on the data front with just the US ISM Services PMI scheduled for Wednesday and the US Jobless Claims on Thursday. The market has shown strong resilience to weaker data in the past weeks and it’s hard to tell how much bad the data needs to be to bring it down. One thing that held pretty well is the US Jobless Claims, so much worse than expected readings might trigger a selloff.
