Last Friday, the NFP report beat expectations across the board with the unemployment rate falling to 3.7% vs. 3.9% previously and the average hourly earnings on a monthly basis higher than expected at 0.4%. The jobs data was followed by a strong University of Michigan Consumer Sentiment survey where inflation expectations fell much more than expected.
Overall, it was a good day for those in the soft-landing camp, but it also raised the risk of a hawkish FOMC rate decision on Wednesday as the Fed might push against rate cuts expectations more strongly. The S&P 500 continues to consolidate at the highs as there might not be that much of an incentive to keep pushing ahead of this week's risk events.
S&P 500 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the S&P 500 last Friday rallied back to the cycle high as the strong economic data supported the soft-landing narrative. This is where the sellers should start to step in with a defined risk above the cycle high to position for a drop into the 4540 level and upon a further break lower, target the support zone around the 4400 level where we can also find the 38.2% Fibonacci retracement level for confluence.
S&P 500 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price has been diverging with the MACDinto the cycle high. This is generally a sign of weakening momentum often followed by pullbacks or reversals. This might be a signal for the buyers to be extra careful especially ahead of this week’s key events. For the sellers, it’s another bearish confluence for a drop to at least the 4540 level.
S&P 500 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the tentative price action into the cycle high. A break above the cycle high might even trigger another extension to new highs but the risk to reward wouldn’t be optimal. The buyers should wait for a pullback into the 4540 level or even the 4400 support to position for another rally.
This week is going to be a big one with the US CPI and the FOMC rate decision on the agenda. We begin tomorrow with the release of the US CPI report where the market will want to see how the disinflationary trend is going. On Wednesday, we have the US PPI data followed by the FOMC rate decision where the Fed is expected to keep interest rates unchanged. On Thursday, we will see the US Retail Sales and Jobless Claims figures, while on Friday we conclude the week with the US PMIs.