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China's clashing priorities behind rare money market distress

The last week was incredible for the Dow Jones with
the index rallying for five consecutive trading days. The bulk of the rally
came after the FOMC rate decision where the Fed left interest rates unchanged and Fed
Chair Powell delivered less hawkish than expected remarks. The Dow
Jones then extended the gains into the weekend after the NFP report
missed forecasts and the ISM Services PMI came
lower than expected.

One may think that the stock market sees a soft
landing and the fall in Treasury yields is a good thing. Unfortunately,
Treasury yields fell likely because the bond market sees more weakness to come
in the next few months given the softening in the labour market. So, the rally
we’ve seen out of the disappointing data is likely to be misplaced and the
market might correct that soon.

Dow Jones Technical
Analysis – Daily Timeframe

Dow Jones Daily

On the daily chart, we can see that the Dow Jones erased
all the losses of the past two weeks and rallied back into the key resistance around
the 34000 level where we can also find the trendline and the
61.8% Fibonacci retracement level
for confluence. This is
where the sellers are likely to step in with a defined risk above the high to
position for a drop into the lows.

We can also notice that the price is overstretched
as depicted by the distance from the blue 8 moving average. In such
instances, we can generally see a pullback into the moving average or some
consolidation before the next move.

Dow Jones Technical
Analysis – 4 hour Timeframe

Dow Jones 4 hour

On the 4 hour chart, we can see more closely the
bearish setup with the key resistance highlighted by the blue box. We can also
notice that the price is overstretched even on this timeframe. The buyers will
need a break above the resistance zone to invalidate the bearish setup but from
a risk management perspective, they will be better off to wait for a pullback
instead of chasing the rally at these elevated levels.

Dow Jones Technical
Analysis – 1 hour Timeframe

Dow Jones 1 hour

On the 1 hour chart, we can see that we
have a pretty good support around the trendline where we can find the red 21
moving average and the 38.2% Fibonacci retracement level for confluence. That’s
where the buyers are likely to step in with a defined risk below the trendline
to position for a break above the resistance. The sellers, on the other hand,
will want to see the price breaking lower to increase the bearish bets and
target a drop into the lows.

Upcoming Events

This week is pretty empty on the data front with just
the US Jobless Claims on Thursday and the University of Michigan Consumer
Sentiment on Friday. The market is likely to focus on the past week events and
will be eager to see the US Jobless Claims on Thursday given the recent weakness
in the labour market data.

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