The Fed last week made the decision to pause its tightening cycle, settling at a range of 5.00-5.25%. Their reason was the need for additional economic data before proceeding with further rate hikes. Their objective is to carefully adjust the level of monetary restraint necessary to reduce inflation to the 2% target without inflicting excessive hardship on the economy. The Russell 2000 responded positively the day after the FOMC decision, rallying, but experienced a slight retracement just before the extended Juneteenth weekend.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the strong Russell 2000’s rally since the breakout of the 1723-1820 range, has stalled at the key 1920 resistance zone. If the price breaks above the level, it will open the door for a rally towards the 2030 resistance. The sellers are likely to lean on this strong level to target a pullback into the 1820 resistance turned support, while the buyers may want to wait for a break higher before piling in with more conviction.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the last tap into the 1920 resistance was diverging with the MACD. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we might see just a pullback as long as the disinflationary trend continues and the labour market doesn’t weaken too much.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that from a risk management perspective, the buyers would be better off to lean on the support area at 1860 where we can find a previous swing low level and the 38.2% Fibonacci retracement level of the entire rally into the 1920 resistance. The sellers, on the other hand, will pile in even more aggressively if the price breaks below that support zone to extend the selloff into the 1820 support.
There’s not much economic data to be released this week; however, we will hear from various Fed members, including Fed Chair Powell, who will testify before Congress on both Wednesday and Thursday. As the week progresses, we will also get the US Jobless Claims report on Thursday, followed by the US PMIs on Friday.