Let us look at these amazing facts. When the Fed started tightening monetary policy in March 2022, the unemployment rate was 3.6%. Since then, about four million net new jobs have been created and the unemployment rate is now 3.4%. However, inflation has not risen, it has fallen significantly; wage increases have moderated, not accelerated, and rent inflation will be lower in the future. We also know that the effect of tight money on inflation is delayed. Maybe, just maybe, the Fed can end the spook without destroying the economy.
Either way, today’s inflation report will be a market-influencing signal.
Fed Chair Powell has also indicated that strong labour market or inflation reports will push the fed funds rate up. So the market is not very convinced about what comes next and economic data will be crucial for trading.
The best strategy would be to stay away until there is a clear breakout for which there is a fundamental reason.
Two of the biggest indicators of market health – the Dow and the dollar – are facing both technical resistance and potential volatility from today’s upcoming release of US CPI. Does this event have the ability to push these markets through their technical limits?
On the daily chart for the current level in February 2023, we can see in more detail the range defined by resistance at 34320 and support at 33470. These are the levels to keep an eye on for a breakout. In between is no man’s land and you can only “play the range”, i.e. buy at support and sell at resistance.