Wall Street may be due a profit-taking moment
|US stock markets have staged a sharp V-shaped rebound since the April low, with the Dow Jones Industrial Average up 16%, the S&P 500 climbing 22%, and the tech-heavy Nasdaq Composite surging 31%. The rally has been fuelled by risk-on sentiment following the Trump administration’s reversal on tariffs and a strong US earnings season, particularly among hyperscalers. A supportive macroeconomic environment has also underpinned the advance, with easing inflation, expectations of Fed rate cuts, and a broadly resilient US economy, even as early signs of slowing growth begin to emerge.
However, the recent rally may now be primed for a bout of profit-taking ahead of next week’s Federal Reserve meeting. Despite mounting political pressure from President Trump to ease monetary policy, the Fed is expected to take a cautious, gradual approach to cutting interest rates. Tariff-induced inflationary risks remain a key concern for the central bank. Although May’s CPI reading came in cooler than anticipated, inflation still sits above the Fed’s 2% target.
In addition, escalating geopolitical tensions could weigh further on risk assets. Israeli airstrikes on Iran sparked a sharp selloff in global stock markets during Friday’s Asian session. All three major US index futures fell significantly, with technology stocks leading the losses. Other risk-sensitive assets, including industrial metals and commodity-linked currencies, also declined, while crude oil prices spiked about 8% to a four-month high.
From a technical perspective, overbought conditions and emerging bearish divergence signals suggest a likely pullback in the major US indices. Meanwhile, I maintain a bullish view on the US dollar in the near term, as it regains its role as a haven asset amid rising geopolitical risk.
Bearish divergence emerges in the Nasdaq
Chart 1 – Nasdaq 100 futures, daily
Source: TradingView as of 13 Jun 2025
A bearish divergence between the price and the stochastic trend has emerged in the Nasdaq 100, accompanied by overbought conditions. This indicates the potential for a deeper correction after the index’s more than 30% surge over the past two months. Immediate support lies at the 23.6% Fibonacci retracement level, which aligns with the 23 May low around 20,758. Further downside support may be found at the 38.2% retracement, around 19,933.
On the flip side, the recent high of 22,106 marks a key resistance level to the upside.
A bullish divergence emerges in DXY
Chart 2 – The US Dollar Index, daily
Source: TradingView as of 13 Jun 2025
A potential bullish divergence has appeared in the US dollar index (DXY), with the stochastic oscillator turning higher from oversold territory. Thursday’s low of 97.62 now acts as near-term support, while the immediate resistance stands at the 10 June high of 99.39. A possible double-bottom formation is also developing; if confirmed, it could see the DXY rebound above the psychological level of 100.
On the flip side, a break below the recent low could accelerate the dollar’s decline towards 95.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.