DOW posted its biggest daily decline in nearly a year overnight, rattled by the latest US inflation figures that unexpectedly showcased a slowdown in disinflation. This development has cast serious doubts over Fed’s ability to start cutting interest rates cut in May, a move that was previously anticipated by investors.
The changing market expectations, now leaning towards a 65% probability of Fed maintaining rates in May, mark a stark shift from just a day prior, when the odds stood at around 40%.
The upcoming PCE inflation data, set for release on February 29, holds the potential to further cement these expectations if it mirrors the persistence in core inflation.
Technically, a short term top should be formed at 38927.08, but it’s not a disaster yet. Price actions from there are currently seen as developing in to a near term consolidation pattern. As long as 55 D EMA (now at 37338.04) holds, this consolidation should be relatively brief. Another rise through 38927.08 towards 40k psychological level is expected sooner rather than later.
However, considering bearish divergence condition in D MACD, firm break of 55 D EMA should trigger deeper correction to 38.2% retracement of 32327.20 to 38927.08 at 36405.92, and possibly below.
