Fundamental
Overview
The US CPI yesterday came mostly
in line with expectations and wasn’t strong enough to force a reassessment on a
September cut. In fact, the pricing for the Fed actually increased from 57 bps of
easing by year-end to 61 bps after the US CPI report.
The majority of Fed voters
are also on board for a cut in September so now we will likely need a hot NFP
to reduce the probabilities towards the 50% chance, although it’s more likely
that the market will just price out the chances for the future cuts.
The focus now switches to
Fed Chair Powell’s speech at the Jackson Hole Symposium, although he will
likely either join his colleagues or just repeat that they will decide based on
the totality of the data.
For the stock market, this
is all good news as the Fed’s dovish reaction function despite a resilient
economy, keeps growth expectations skewed to the upside favouring the bullish
trend. This is a train that can’t be stopped unless the Fed changes its stance (opening
the door for hikes) or we get some negative growth event like we’ve seen in April.
S&P 500
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that the S&P 500 extended the gains into new all-time highs as the FOMO
is now kicking in. From a risk management perspective, the buyers will definitely
have a better risk to reward setup around the trendline
to position for further upside, but we will need a big pullback for that which
is not expected at least until September. For the sellers, a break below the
trendline would open the door for an even deeper pullback into the 6,160 level.
S&P 500 Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that we have a minor trendline defining the bullish momentum on this
timeframe. We just got a bounce from it yesterday following the US CPI report,
and the price is now trading just above the previous all-time high.
The buyers will likely pile
in around these levels with a defined risk below the previous all-time high to
position for further upside. The sellers, on the other hand, will look for a
break lower to target a pullback into the minor trendline.
S&P 500 Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see more clearly the recent price action although there’s not much we can add
here. The 6,460-6,475 area should act as support,
so if we get a pullback into it, we can expect the buyers to step in to target
new highs, while the sellers will look for a break lower to target a drop into
the trendline. The red lines define the average
daily range for today.
Upcoming
Catalysts
Tomorrow we get the US PPI and the US Jobless
Claims figures. On Friday, we conclude the week with the US Retail Sales and
the University of Michigan Consumer Sentiment report. Focus also on Fedspeak, especially
after yesterday’s US CPI data.
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This article was written by Giuseppe Dellamotta at investinglive.com.