Nasdaq eases amid cooling US-Iran tensions, but downside risks remain

The Nasdaq experienced a sharp decline last week as growth worries, combined with widening credit spreads and the threat of further US-Iran military action, dampened risk appetite. No US attack has occurred yet, but the likelihood grows as the midterm elections approach.

Fundamentals still suggest the index has further room to fall, given the near-total absence of bullish catalysts at present. Stretched credit spreads, inflationary pressures, growth risks, high energy costs, geopolitical instability and a hawkish Federal Reserve are all expected to cap any recovery.

The situation in the Middle East remains a key factor. A reduction in the Saudi-Houthi conflict or an unexpected advance in US-Iran talks could trigger a substantial drop in oil prices and provide a boost to the Nasdaq.

Market attention this week also turns to the FOMC decision on Wednesday, where the Fed is broadly anticipated to hold interest rates steady. The announcement is unlikely to cause significant market moves unless the central bank surprises with a rate increase.

No Dot Plot is due at this meeting, so the focus will be on Fed Chair Warsh. Given his usual reluctance to offer forward guidance, he is not expected to say much, though traders will watch for any hawkish surprises.

NASDAQ TECHNICAL ANALYSIS – DAILY TIMEFRAME

The Nasdaq (US100 CFD contract) is trading in a narrow range near the 28,742 level. Buyers appear to be stepping in at this point, with a defined risk below the level, aiming for a move to new record highs. Sellers, meanwhile, want to see the price break lower to build on bearish positions toward the 26,971 level next.

NASDAQ TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

NASDAQ TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

The 1-hour chart shows the consolidation around 28,742 more distinctly. A minor resistance zone exists near 29,200, where sellers are expected to step in to target new lows, while buyers look for a breakout to extend the pullback to the downward trendline.

UPCOMING CATALYSTS

The US Consumer Confidence report is due tomorrow. On Wednesday, the FOMC rate decision is released. Thursday brings the US GDP report, US PCE data and the latest US Jobless Claims numbers. The week concludes on Friday with the US Employment Cost Index.