Nasdaq outlook tied to US inflation data and geopolitical risk

FUNDAMENTAL OVERVIEW

The Nasdaq index is holding near its May levels, trading in a tight range with elevated volatility over the past four months. Two factors driving this underperformance are the risk of Fed tightening and the conflict between the US and Iran, both acting as headwinds for growth.

These headwinds emerged at a time of extremely one-sided positioning. Tech stocks, particularly semiconductors, had recorded the highest level of crowding ever. With the shift in macro conditions, deleveraging has spread across markets.

The most recent drop was sparked by Fed Chair Warsh's hawkish comments, which tightened financial conditions and prompted a repricing of rate expectations. The probability of a September rate hike rose from 33% to 60%.

Warsh also stressed that the Fed's sole focus is inflation and that progress has been slow. According to the author, only a weak US CPI release could push the probability below 50% and prevent a rate hike at the next meeting.

If the probability remains at or above 50%, the Fed may feel compelled to hike anyway, as holding back would be seen as dovish and loosen financial conditions again.

Currently, Nasdaq's upside is capped by hawkish expectations and the escalating US-Iran conflict. A best-case outcome would combine a soft CPI with Middle East de-escalation. The worst-case, by contrast, would be a hot CPI and no de-escalation, potentially driving the market to July's lows.

NASDAQ TECHNICAL ANALYSIS – DAILY TIMEFRAME

On the daily chart, Nasdaq has support near 28,950. A pullback to that level could attract buyers, who would set stops below to target a move to record highs. Conversely, sellers would look for a break lower to aim for July's low near 27,200.

NASDAQ TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

NASDAQ TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the hourly chart, a downward trendline marks the bearish momentum that started after Warsh's hawkish speech, while an upward trendline traces the recent recovery. Buyers may continue to use the upward trendline to push toward resistance, while sellers seek a rejection at the downward trendline and a break of the upward trendline, which would set up a drop below support.

UPCOMING CATALYSTS

Today's events include Fed's Waller speech, US jobless claims, and the ISM services PMI. The week ends tomorrow with the US nonfarm payrolls report.