U.S. equities have struggled on softness, battered by doubts over inflation and other macro indicators. Market players are keen to see if readings bode for a much-needed rally or will send the markets into a deeper bearish phase. Inflation remains hot news, and so is this question: “Can U.S. inflation spark a Wall Street rally?”
This week the markets will focus a lot on U.S. inflation data, which can set the tone for the rest of the year. The traders are watching and waiting for other significant market movers in NASDAQ, crude oil, and GBP/USD, commonly known as cable. It has the potential to determine whether the Wall Street breaks the pattern and begins moving freely or continues to consolidate.
Traders need to rely on technical signals and be ready for the probable reactions of the market to inflation data in order to survive through this volatile environment of the week. Opportunities of buying NASDAQ and oil lie in understanding the structure of the market with divergences, thus proving oneself capable enough to do profitable trades. In this forecast, we will break down the markets as well as the levels to watch out for the week.
U.S. Inflation: Is it the Catalyst for a Wall Street Rally?
The inflation report of the States is going to be the main source of direction in this week. Wall Street has been trading at modest gains or potential losses since the beginning of the week, so yet there is no clear catalyst that could push it either way. Inflation might be just the impetus. A sudden pop in cooling inflation could rekindle bullish sentiment and unlock more widespread rallies across major indices like the NASDAQ and S&P 500.
But if it persists, that should keep the Fed hawkish, end hopes for rate cuts, and increase pressure on equities. Inflation above expectations can be rather shocking for markets, creating volatility.
Cable (GBP/USD): Divergence Presents Opportunities
One of the sensitive markets I believe is going to take central stage this week is cable. For some people out there who don’t know what cable really means, it refers to the GBP/USD. It is a currency pair that has always reacted to most of the economic data emanating from both the US and the UK. Technically, as seen on charting, cable has been exhibiting quite vivid divergence on multiple indicators, including the RSI, stochastics RSI, and MACD. By extrapolation, divergences usually point to a slowdown in downtrends, which should make it a good buying opportunity.
GBP/USD is getting close to a strong level, and participants should pay attention to the 1.2339 mark that holds much importance as this spot demonstrates a significant imbalance on the candlestick. A break above the level will provide continuation in the upside, but resistance in the zone may limit further gains. If inflation is in favor of the dollar, then resistance will open up for cable, but in the case of weakness in the dollar, then cable will move higher.
NASDAQ: Is Inflation the Reversal that the Markets Want?
In turn, since early August, the NASDAQ has come under pressure. Here, a series of lower highs suggests a negative downtrend. Meanwhile, last week, as it awaited key economic data, this index became increasingly volatile. As it stands today, the NASDAQ is still consolidating on its fundamental support level at 15,550.
If the inflation data surprises to the upside, NASDAQ would go as high as it can before it could be able to hit a resistance level of 15,300. A bearish outcome could drag the NASDAQ lower down to 14,400.
It is the make-or-break week for traders, who will look to see the index’s reaction to the news surrounding the inflation report. The break below key support may induce further selling if it is not supported by a rally that creates some short-term trading opportunities at this level.
Crude Oil: Opportunities Amid Volatility
Crude oil experienced one of its worst weeks since March as crude sold off sharply following bearish divergence on the RSI and stochastics indicators. The drop sent prices to the $82 a barrel mark, a level perceived as one point many traders had targeted as potential shorting opportunities.
Even with the pullback of late, the market structure in crude oil is overall bullish. Look for a bounce near the $79 to $80 area—it was there that the market last saw a break of structure to the upside—before the inflation data. Investment banks are still projecting $100 per barrel by the end of the year, which suggests that there is more upside to be had in the price of oil.
In case of a surprise upside inflation, demand for oil may increase with the possibility of increasing the price bar once more. Weaker inflation numbers may also serve as a contrarian view, dampening demand and dropping the price of oil once again.
Key Market Levels to Watch
This week, here’s a quick recap of the critical levels to watch for this week:
- GBP/USD: Key resistance at 1.2339. Watch for a break above this level for potential upside.
- NASDAQ: Support at 15,550. A break higher could find resistance around 15,300, while a break lower may target 14,400 or so.
- Crude Oil: Prices will probably bounce near $79–$80, with resistance around $82. Long-term targets remain in the region of $100 per barrel.
Conclusion
This week’s U.S. inflation report will tell whether we see a rally on Wall Street or further consolidation across major markets. The potential for high volatility makes this a critical week for traders, watching the likes of GBP/USD, NASDAQ, and crude oil.
With knowledge of market structure and key technical levels, the inflation data outcome and this set of information will position the traders to take the best out of what comes their way. Be watchful, trade with discipline, and be prepared to react to whatever the market throws your way as this pivotal week begins.
As always, trade well, and join us live on air where we comment on these markets in real time.
