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Equity traders look to US economic data this week for direction

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Nick Goold

Dow Jones Index

A quiet week for US equities as the market is still confused about how to react to the strong employment figures from the previous week. Last week's focus was the speech by Fed chairman Powell who cautioned that further interest rate increases are still likely even though inflation is slowing. The market was nervous that Powell would be more aggressive regarding interest rate rises, so the equities rose on the news.

This week is full of economic data releases, with US inflation figures Tuesday and Thursday and US retail sales Wednesday. It could trigger a quick fall if the data confirms the recent stronger-than-expected US economic growth trend. In addition, US 10-year interest rates are rising again, up 0.20% to 3.74% last week, potentially bearish for equities.

Market sentiment remains positive in the short term, so buyers will likely welcome any price falls. However, the 10-day moving average points sideways, and the Dow Jones Index is in the middle of the 2023 range, so the market is challenging to forecast. Therefore, the best strategy remains range trading, not expecting strong trends to develop.

Resistance: 34360, 34500, 35000, 35500, 36000, 36500

Support: 33500, 33000, 32500, 32000

Nikkei 225 index

The Nikkei index continued to push higher last week but ended the week unchanged. The week started strongly as the Nikkei followed the USDJPY higher, but with US equities lacking direction, profit-taking prevented further gains.

This week promises to be busier, with the new Bank of Japan governor likely to be announced on Tuesday. Japanese monetary policy has been starting to change as the Japanese economy shows signs of growth and inflation, resulting in recent large price movements in the Nikkei. As a result, the market will try to forecast potential policy changes from a new governor with the risk to the downside.

The medium-term outlook remains positive, but in the short term, there is a potential for falls should US equities react negatively to economic data this week. So rather than selling, it might be better to buy weakness or a break of recent highs.

Resistance: 28000, 28300, 28500

Support: 27375, 27150, 27000, 26250, 25500, 25000, 24500

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