Dow Jones Analysis: Attempted Trend Breakout Amid Fed Rate Expectations

On 26 August, the US Commerce Department released July data on the Personal Consumption Expenditures (PCE) index. Core PCE rose 0.2% month-on-month and 3.3% year-on-year, in line with market expectations. Ellen Zentner, Chief Economic Strategist at Morgan Stanley Wealth Management, noted that the modest upside surprise in inflation was not significant enough to shift the balance of expectations ahead of the Federal Reserve's September meeting.

Earlier, on 19 August, minutes from the Fed's July meeting showed that policymakers remained open to further rate increases if inflationary pressures persisted, with three committee members having already voted in favour of a hike. Against this backdrop, Treasury yields remain close to 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 declining 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 shifts the balance decisively in one direction.

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