The Nasdaq has declined over 14% from its peak, influenced by weak US PMIs and rising long-term inflation expectations. Concerns have emerged regarding the Federal Reserve’s response to a potential economic slowdown, exacerbated by uncertainty around tariffs.
Trump’s trade policies are viewed unfavourably given the current inflation context, limiting the Fed’s ability to adjust rates effectively. Key upcoming reports include the US CPI, which is pivotal for determining market direction, with expectations for soft figures to prompt a recovery.
Technical Outlook
Technical analysis indicates a bearish trend on the daily chart, with resistance at the major trendline. The 4-hour and 1-hour charts show a potential for further sell-offs if the downward trend continues. Upcoming economic reports throughout the week may influence market dynamics significantly.
The recent downturn in the Nasdaq, now over 14% below its peak, has largely been driven by weaker-than-expected US PMIs and rising long-term inflation expectations. These factors have fuelled speculation about how the Federal Reserve will respond, particularly given ongoing concerns about tariffs. While policymakers have positioned themselves as data-dependent, their flexibility appears restricted by inflationary pressures that remain stubbornly above target.
The policies outlined by Trump add another layer of complexity. Given the current economic climate, his approach to trade has been met with scepticism, as it could exacerbate inflationary pressures that are already shaping the Fed’s decision-making. With rate cuts becoming an increasingly contentious issue, any deviation from expected inflation data carries the potential for swift market reactions. The coming release of US CPI figures could provide much-needed clarity. Should inflation data surprise to the downside, markets may find relief, fuelling expectations of a less restrictive Fed. Conversely, stronger figures would reignite debate over whether current policy is still too accommodating.
From a technical perspective, price action continues to reflect underlying weakness. The primary trend remains downward, with major resistance holding firm at key levels on the daily chart. Shorter-term timeframes, including the 4-hour and 1-hour charts, reinforce this bearish bias, indicating that further declines are possible if price fails to reclaim lost ground. Much depends on how the market digests forthcoming economic releases, which will determine whether momentum shifts or if selling pressure resumes.
Market Sentiment
As the week unfolds, macroeconomic reports will remain a driving force behind volatility. Traders should keep a close eye on inflation data and any remarks from policymakers, as these elements will dictate near-term sentiment. Should rates expectations shift in response to fresh data, liquidity conditions could change rapidly, affecting both positioning and overall market direction.
