Week Ahead: US30 ripe for a steep pullback?

*Note: This report was written before the US NFP data was published*

• US30 ↑ 8% in Q3

• April only negative trading month in 2024

• Geopolitics, US CPI & big bank earnings in focus

• Over past year, US CPI triggered ↑ 0.7% & ↓ 0.8%

• Technical levels – 42400 & 41900

A cocktail of high-impact events could present fresh trading opportunities in the week ahead.

Ongoing geopolitical tensions, top-tier economic data and earnings announcements by big US banks will be in focus:

Monday, 7th October

• AU200: Australia CPI report
• EU50: Eurozone retail sales
• GER40: Germany factory orders
• USDInd: Speeches by Minneapolis Fed President Neel Kashkari, Atlanta Fed President Raphael Bostic and St. Louis Fed President Alberto Musalem

Tuesday, 8th October

• AU200: Australia consumer confidence
• GER40: Germany industrial production
• JP225: Japan household spending, current account
• TWN: Taiwan trade, CPI
• USDInd: Speeches by Atlanta Fed President Raphael Bostic, Boston Fed President Susan Collins and Fed Governor Adriana Kugler

Wednesday, 9th October

• USDInd: FOMC minutes
• US500: Speeches by Dallas Fed Presidents Lorie Logan, Atlanta Fed President Raphael Bostic, Chicago Fed President Austan Goolsbee and Mary Daly of San Francisco

Thursday, 10th October

• JP225: Japan PPI
• NZD: New Zealand home sales
• SG20: Singapore GDP
• ZAR: South Africa manufacturing production
• NAS100: Tesla CEO Elon Musk host Robotaxi launch
• US30: US September CPI, initial jobless claims, New York Fed President John Williams speech

Friday, 11th October

• CAD: Canada unemployment
• GER40: Germany CPI
• NZD: New Zealand food prices, PMI
• UK100: UK industrial production, GDP
• US500: Speeches by Dallas Fed President Lorie Logan, Chicago Fed President Austan Goolsbee, Wells Fargo earnings
• US30: US PPI, University of Michigan sentiment, JPMorgan Chase earnings

But the spotlight shines on FXTM’s US30 which tracks the benchmark Dow Jones Industrial Average index.

Before we cover what to expect in the week ahead, it’s worth noting that the index could be rocked by the US jobs report this afternoon – (Friday 4th October).

It has been a shaky start to Q4 for the US30 due to geopolitical risk and cooling Fed cut bets. Although the trend is bullish, a technical pullback may be pending…

Note: A pullback is a temporary pause or decline in an asset’s overall bullish trend.

These 4 factors may influence the US30’s outlook in the week ahead:

  1) Geopolitical tensions

Escalating tensions in the Middle East have rattled global sentiment.

After Iran launched a barrage of ballistic missiles at Israel, investors are concerned about a potential retaliation dragging more countries into the conflict. This growing uncertainty could promote a “risk-off” mood, dragging US equities lower amid the flight to safety.

• The US30 could tumble on further signs of escalating geopolitical tensions.

• Any signs of easing tensions could boost market sentiment, supporting the US30.

  2) US September CPI report

The incoming US Consumer Price Index (CPI) will likely impact bets around how deep the Fed cuts rates in Q4.

Markets are forecasting:

• CPI year-on-year (September 2024 vs. September 2023) to cool 2.3% from 2.5% in the prior month.
• Core CPI year-on-year to remain unchanged at 3.2%.
• CPI month-on-month (September vs August 2024) to cool 0.1% from 0.2% in the prior month.
• Core CPI month-on-month to cool 0.2% from 0.3% in the prior month

Ultimately, further signs of cooling price pressures may support the case for deeper Fed cuts.

Note: Before the key US inflation data on Thursday, the US30 may be impacted by the FOMC meeting minutes on Wednesday and a host of Fed speeches throughout the week. This will be topped off with more US data on Friday.

Golden nugget: Over the past 12 months, the US CPI report has triggered upside moves of as much as 0.7% of declines of 0.8% in a 6-hour window post-release.

  3) Big bank earnings

Third quarter earnings season kicks off on Friday 11th October, led by the biggest US banks.

JPMorgan Chase will be under the spotlight and could offer crucial insight into what Fed rate cuts mean for American banks.  So, all eyes will be on the outlook for net interest income (NII) – which is the difference between interest revenues and interest expenses. In a nutshell, what the bank earns on loans and what it pays on deposits.

Note: Profitability in the banking sector rises when interest rates increase. When interest rates fall, this lowers the profit from loans.

When factoring in how financial stocks make up 23% of the US30 with JPMorgan Chase accounting for 3.2% of its weighting, the incoming earnings could spark some volatility.

Golden nugget: Markets are forecasting a 3.4% move, either Up or Down, for JPMorgan Chase stocks on Friday post earnings.

  4) Technical forces

The US30 is respecting a bullish channel on the daily charts with prices trading above the 21, 50, 100 and 200-day SMA. However, prices have been trapped within a range since mid-September with support at 41900 and resistance at 42400.

• A solid breakout and daily close above 42400 may open a path toward the all-time high at 42708 with the next psychological level at 43000.

• Should prices slip below 41900, this could trigger a selloff toward the 21-day SMA at 41732 and 41400. Weakness below this point may open a path back toward the 50-day SMA at 41000.