The Fed delivered a bit more hawkish pause than expected keeping interest rates unchanged at 5.00-5.25% but adding 50 bps to the projected terminal rate in the Dot Plot. The Fed decided to pause at this meeting to see more economic data before deciding on another possible hike at the July meeting. This action may be justified given the weaker details in the latest NFP report and some more disinflation in the latest CPI report, although the core readings remain sticky at elevated levels.
Fed Chair Powell mentioned that the July meeting is “live”, but he didn’t really want to pre-commit. The market reacted with a spike down when the Dot Plot was released but returned back to the original levels once Powell’s press conference began. Overall, it just shows that the Fed is ready to do more to bring inflation down, but it will all depend on the economic data.
S&P 500 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the S&P 500 extended the rally after breaking out of the key 4324 swing high level. There’s no real resistance until the 4628 level, so the sellers will need some strong fundamental catalyst to bring this market down. The buyers are likely to continue buying the dips until a real recession will start to emerge in the data, most probably with labour market data.
S&P 500 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the pullbacks have been really shallow recently as momentum buyers jumped on board as soon as the S&P 500 broke out. From a risk management perspective, a good level where the buyers can enter would be the upward trendline with also the support at the 4324 swing level where we can also find the 61.8% Fibonacci retracement level. The sellers, on the other hand, don’t have strong resistance levels to lean on here, so they should target the breakouts before piling in, with the first one being the trendline.
S&P 500 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the short-term price action with the S&P 500 diverging with the MACD since the breakout of the 4324 resistance. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case we may get the classic “break and retest” type of scenario where the S&P 500 pulls back to the 4324 resistance turned support before continuing its upward trend. The sellers will need to break below that support level to pile in and target the 4175 level.
Today, we have the US Jobless Claims and Retail Sales report, while tomorrow we will see the University of Michigan Consumer Sentiment survey. Another big miss in Jobless Claims might spell trouble for the market as it may signal that the labour market is indeed deteriorating fast. On the other hand, better than expected figures should keep the market on its bullish trend. The market will also want to see a lower figure in the long-term inflation expectations in the UMich report tomorrow as a higher reading might point to inflation expectations getting de-anchored.
