Dow Jones Attempts Trend Breakout as Fed Rate Expectations Weigh on Markets
Key Takeaways
- •Core PCE rose 0.2% month-on-month and 3.3% year-on-year in July, matching market forecasts and remaining well above the Fed's 2% target.
- •Fed July meeting minutes showed policymakers remained open to further rate increases, with three committee members already voting in favour of a hike.
- •The Dow Jones is trading between the Point of Control at 53,490 and the upper profile boundary at 53,700 after breaking above a descending trendline.
- •Key technical levels include resistance near 53,900 and support around 53,150, with the RSI and moving averages in neutral territory.
- •The index's direction may hinge on upcoming employment and inflation data before the Fed's September meeting.
On 26 August, the US Commerce Department published July figures for the Personal Consumption Expenditures (PCE) index. Core PCE, which excludes volatile food and energy prices and serves as the Federal Reserve's preferred gauge of underlying inflation, increased 0.2% month-on-month and 3.3% year-on-year, matching market forecasts. Ellen Zentner, Chief Economic Strategist at Morgan Stanley Wealth Management, observed that the modest upside surprise in inflation was not significant enough to alter the balance of expectations heading into the Federal Reserve's September meeting.
Earlier, on 19 August, minutes from the Fed's July meeting revealed that policymakers remained open to additional rate increases should inflationary pressures persist, with three committee members having already voted in favour of a hike. The central bank has raised rates aggressively since March 2022 to bring inflation back toward its 2% target, and core PCE remains well above that level. Against this backdrop, Treasury yields continue to trade near multi-year highs, keeping rate expectations tilted towards the possibility of further tightening.
Technical Analysis of Dow Jones
The four-hour Dow Jones chart (WS30m on FXOpen) shows a short-term downtrend, with prices steadily falling from a local peak around 54,700 and establishing a descending trendline in the process.
On 25 August, the index moved beyond the trendline and subsequently formed the current market profile. The index is now trading between the Point of Control (POC) at 53,490 and the upper boundary of the profile at 53,700.
If the breakout develops into a sustained advance, the next significant level to watch is the red resistance area around 53,900.
Conversely, if the trend breakout proves to be false and the decline resumes, the price would first need to move through the POC at 53,490 and then break below the lower profile boundary at 53,320. Only after clearing this area would the path towards the green support level around 53,150 become more open.
The RSI + MAs indicator currently shows readings of 52, 55, and 51. The oscillator and both moving averages remain within the neutral zone, although the moving averages are still displaying a bullish signal.
Key Takeaways
The attempted break above the descending trendline is taking place within a dense market-profile area, providing no clear confirmation of a sustained move in either direction.
The index's next move could depend on whether the current divide in expectations surrounding the Fed's September decision persists, or whether incoming economic data — such as the upcoming employment and inflation reports scheduled before the meeting — shifts the balance decisively in one direction.
