It looks like the more hawkish than expected FOMC Dot Plot last
week was kind of a wakeup call for the market as it’s been selling off with
almost no pullback ever since. The resilience in the economy is keeping the Fed
on the hawkish camp as it wants to see more weakness in the data, especially on
the labour market front. We’ve seen a huge rally since the lows back in October
2022 as the market continued to see a soft landing but even Fed Chair Powell said
that it’s not his base case, although they are aiming for it. With so many
bearish drivers that accumulated throughout the first half of 2023, the market
might be at risk of a major fall now.
Russell 2000 Technical
Analysis – Daily Timeframe
On the daily chart, we can see that the Russell
2000 continued to fall after breaking below the key support around
the 1820 level. The target for the sellers is now the support around the 1720
level where we will likely find strong buyers stepping in with a defined risk
below the support to position for a rally back into the 1820 resistance.
Russell 2000 Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that if we were to
see a pullback, the best place for the sellers from a risk management
perspective will be the trendline where
there’s also the confluence with the
Fibonacci retracement levels.
The buyers, on the other hand, will want to see the price breaking above the
trendline to position for a rally back into the 2020 resistance.
Russell 2000 Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we
have a divergence with
the MACD which
is generally a sign of weakening momentum often followed by pullbacks or
reversals. In this case, we might see a pullback into the minor trendline and
the 38.2% Fibonacci retracement level where the sellers are likely to pile in
for another selloff into the 1720 support. The buyers, on the other hand, are
likely to pile in on a breakout and position for a rally into the major
trendline.
Upcoming
Events
Today the main event will be the US Jobless Claims
report. At this point, looks like there’s not much difference if it’s strong or
weak data as the former would keep the Fed hawkish and even raise the risk of
higher rates, while the latter might point to a recession. Nonetheless, the
last time the market rallied on weak data as it decreased the risk of further
tightening and brought down Treasury yields. Tomorrow, we will see the latest
US PCE data which is unlikely to change much in terms of market pricing unless
we see some big surprises.
This article was written by FL Contributors at www.forexlive.com.