Dow Jones & Nasdaq 100: Carry Trade Risks Test US Futures Pre CPI Report

US stock futures steadied early in the Asian session on Friday, February 13, after facing heavy selling pressure in the previous session. The market focus now shifts from concerns about AI-related spending and disruption to US inflation and the Fed.

This week, US labor market data cooled expectations of an H1 2026 Fed rate cut. However, the US CPI report will likely have a greater influence on the Fed’s policy stance, given Fed Chair Powell’s concerns about elevated inflation.

Softer US inflation, rising bets on an H1 2026 Fed rate cut, would support a medium-term outlook for US stock futures.

Below, I’ll outline the key market drivers, the medium-term outlook, and the technical levels traders should watch.

Fed Policy Expectations and Rate Differentials

US futures edged higher during the Asian session on February 13. The Dow Jones E-mini climbed 30 points, while the Nasdaq 100 E-mini and the S&P 500 E-mini advanced 28 points and 6 points, respectively.

Notably, the broader Asian indices were in the red, limiting the gains across US stock futures. The Nikkei 225 fell 0.88% in early trading, pressured by yen strength, following the USD/JPY pair’s drop below 153. Rising bets on multiple Bank of Japan rate hikes contributed to increased buying interest in the yen.

Expectations of multiple Fed rate cuts and multiple BoJ rate hikes signal narrowing US-Japan rate differentials, favoring the yen. Crucially, narrowing rate differentials make yen carry trades into US assets less profitable, raising the risk of a carry trade unwind as seen in mid-2024.

US CPI Report to Spotlight the Fed

Later on Friday, the US CPI report will influence sentiment toward the Fed’s policy stance. Economists expect the annual inflation rate to fall from 2.7% in December to 2.5% in January. Furthermore, economists forecast core inflation to ease from 2.6% in December to 2.5% in January, above the Fed’s 2% target.

Softer-than-expected inflation figures would likely boost expectations of an H1 2026 Fed rate cut. While a more dovish Fed rate path would increase risks of a yen carry trade unwind, lower borrowing costs would have a longer-term positive effect on demand for US stock futures. For context, lower borrowing costs can boost profitability and stock valuations, overshadowing the short-term effects of a yen carry trade unwind.

Beyond the data, traders should closely track comments from FOMC members. Views on the labor market, the inflation data, and monetary policy will influence risk sentiment.

According to the CME FedWatch Tool, the probability of a March Fed rate cut fell from 23.2% on February 5 to 8.9% on February 12. Meanwhile, the chances of a June cut dropped from 75.0% to 64.6%. Market sentiment toward the Fed’s policy outlook remains a key driver for US stock futures.

Key Technical Levels for Dow Jones, Nasdaq 100, and S&P 500

Despite Friday morning’s gains, the Nasdaq 100 E-mini and the S&P 500 E-mini traded below their 50-day EMAs, while holding above their 200-day EMAs. The EMA positions indicated a bearish near-term, but bullish longer-term outlook. Meanwhile, the Dow Jones E-mini remained above its 50-day and 200-day EMAs, signaling a bullish bias that aligns with positive fundamentals.

Near-term trends will hinge on US economic data, central bank rhetoric, earnings, and geopolitical tensions. Key levels to monitor include:

Dow Jones

• Resistance: the February 10 record high of 50,611 and then 51,000.
• Support: the 50-day EMA (48,980), and then 48,500.

Nasdaq 100

• Resistance: the 50-day EMA (25,420), 26,000, and then the October 30 record high of 26,399.
• Support: 24,500 and then the 200-day EMA (24,108).

S&P 500

• Resistance: the 50-day EMA (6,907) and then the January 13 high of 7,036.
• Support: 6,750 and then the 200-day EMA (6,574).

Outlook: Fed Rate Cut Bets Maintain Bullish Sentiment

In my opinion, the short-term price outlook remains cautiously bullish. Meanwhile, ongoing expectations of an H1 2026 Fed rate cut reinforce the bullish medium-term outlook. These positive fundamentals align with longer-term technicals for US stock futures.

However, several scenarios would challenge the bullish medium-term outlook, including:

• Rising geopolitical tensions.
• The Bank of Japan announces a higher-than-expected neutral interest rate (hawkish: potentially 1.5%-2.5%). Narrowing rate differentials could trigger a yen carry trade unwind. Reduced liquidity would weigh on US risk assets. Such an event would invalidate the cautiously bullish short-term outlook.
• US economic data dampens Fed rate cut bets.
• Corporate earnings and outlooks miss consensus.

Conclusion: Bullish Bias Remains Intact

In summary, lingering bets on multiple Fed rate cuts, strong corporate earnings, and a cautiously hawkish BoJ reaffirm the medium-term outlook for US index futures. Multiple Fed rate cut bets remain hinged on lower rates in H1 2026. January’s US CPI report will be key for market trends.

Despite the ongoing risk of yen carry trade unwinds, US stock futures are likely to target new highs if the Fed fuels expectations of a rate cut, countering any liquidity issues from a yen carry trade unwind.

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