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Dow Jones, Nasdaq 100 forecast: will a 75bps Fed rate hike restore market confidence?


ArvinIG

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Dow Jones and Nasdaq 100 suffering as Fed faces credibility test; will a 75-basis point rate hike, or more, restore risk appetite next? Both indices are trying to confirm breakouts under key support.

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Source: Bloomberg
 
 


The Dow Jones and Nasdaq 100 have been falling since an unexpectedly stronger US inflation report crossed the wires last week. This has resulted in a rapid repricing of Federal Reserve rate hike expectations after the central bank began hinting at a pause in September just weeks ago. The markets now anticipate a whopping 75-basis point bump on Wednesday instead of 50.

It seems like the central bank is facing a credibility test. Normally, a softer-than-expected rate hike would typically trigger a boost in risk appetite and fuel stocks higher. This time might be different. That is because such an outcome could be interpreted as the Fed failing to take adequate steps to meet its average inflation target of 2%, causing markets to lose faith in the central bank doing its job and increasing uncertainty.

As such, the Fed might do whatever it takes to restore confidence this week. A 75bp hike might just be the ticket, or perhaps even more. Last week, the Reserve Bank of Australia unexpectedly delivered a stronger-than-anticipated hike that caught traders off guard. If the Fed pulls off a similar measure and upholds its inflation target, this could bode well for risk appetite in the short run.

Down the road, it remains tough to be fundamentally bullish US equities. The reality is that surging bond yields continue taking away the appeal of owning riskier assets. The stronger CPI report last week means higher rates from the Fed for the time being. But, if the central bank can restore faith and build up confidence, perhaps the pain in stock markets could begin cooling in the not-so-distant future.

Dow Jones technical analysis

Dow Jones futures have broken and closed under lows from March 2021, effectively taking out the 30512 – 30803 support zone. Confirmation is lacking at this time, so market bears ought to proceed with some caution. The February 2021 low has been exposed at 29552 as the next key support level. In the event of a turn lower, the 50- and 100-day Simple Moving Averages are still pointing lower, offering a bearish bias. These could hold as resistance, reinstating a downside focus.

Dow Jones – daily chart

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Source: TradingView

Nasdaq 100 technical analysis

Nasdaq 100 futures close around the lows of this year so far, but prices have left behind a Doji candlestick pattern. This is a sign of indecision amid positive RSI divergence, with the latter showing fading downside momentum. Upside follow-through could spell some optimism ahead, placing the focus on the 50- and 100-day SMAs. These could reinstate the downside focus, maintaining a broader bearish bias.

Nasdaq 100 – daily chart

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Source: TradingView

Daniel Dubrovsky | Currency Analyst, DailyFX, San Francisco
15 June 2022


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I hope for a bounce from these levels. It would make sense. Because flushing stocks so hard is not cool at all. So hope for better, easy and safe trading to everyone.

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I expect DJI will drop further before rising again. It is not just inflation concerns but an on going war in Europe also causing fear of escalation. It might hit 29,200 in coming weeks.

I also expect FED will increase just 50bp instead of 75bp widely expected. similarly BoE will increase just 25bp and not 50bp tomorrow, it will probably negatively affect the Mkts.

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54 minutes ago, Azeemulhasan said:

I also expect FED will increase just 50bp instead of 75bp widely expected. similarly BoE will increase just 25bp and not 50bp tomorrow, it will probably negatively affect the Mkts.

Thanks for sharing  @Azeemulhasan

FED AND BOE PREVIEW:

While the Bank of England (BoE) was the first of these two major central banks to begin the rate hiking journey, souring fundamentals in the UK and an increasing sense of urgency to calm soaring inflation in the US, has led us to this juncture. On Thursday, we could very well see a stark shift in the pace and size of future rate hikes for both regions as the market expects over 70 basis points to be added to the Fed funds rate later this evening, while the BoE is poised to hike by a comparatively low 25 bps.

Fed and BoE Implied Rate Hike Odds

GBP/USD Price Setup Ahead of Crucial FOMC and BoE Rate Meetings

Source: Refinitiv, prepared by Richard Snow | DailyFX

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22 hours ago, MOZOK said:

I hope for a bounce from these levels. It would make sense. Because flushing stocks so hard is not cool at all. So hope for better, easy and safe trading to everyone.

Hi @MOZOK

The FOMC comes out all guns blazing and raises the federal funds rate by 75 basis points to 1.50-1.75%, delivering the biggest single meeting hike since 1994 in effort to Crush Inflation.

 

All the best - MongiIG

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