Last week, the NFP missed expectations for a second time in a row and the previous numbers were all revised lower. This was seen as a disappointment as the labour market seems to be a touch weaker than previously expected. Nonetheless, the unemployment rate fell once again and lessened the disappointment from the miss in the payrolls number. The worse part for the Fed is that the average hourly earnings beat expectations, and such high wage growth is not consistent with a sustainable return to the 2% target. It’s worth reminding though, that the Fed will see another NFP report before the September meeting, so this NFP doesn’t change much, but the data leading into the meeting can still weigh on sentiment.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 rejected the key resistance zone around the 2030 level and the started to fall towards the 1920 support. The buyers are leaning on the red 21 moving average as we can see from the various rejections depicted by the wicks. The sentiment though, remains bearish and the market may even play it defensively trading into the CPI report.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we had a divergence with the MACD trading into the key resistance area. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we are still seeing a pullback, but a break below the 1920 support would confirm the reversal and likely lead to new lows. For now, the buyers are piling at this 1960 support with a defined risk below to target the breakout of the key resistance.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the sellers have a short term resistance area around the 1985 level where they keep piling in at every rally. This has created a mini range between the 1960 support and 1985 resistance which makes the setup pretty easy to trade. A break above the resistance should lead to a rally towards the 2030 resistance or beyond. On the other hand, a break below the support should lead to a fall into the 1920 support or lower.
Upcoming Events
This week the main event will be the US CPI report on Thursday. The market has been loving the disinflationary trend seen in the past months, so an upside surprise is likely to weigh on risk sentiment and push the market lower. On the other hand, another miss in the data should provide some relief and lead to a rally. After the US CPI we will also see the latest US Jobless Claims report, which is less likely to move the market since it’s released at the same time of the CPI, but big surprises should have an effect, nonetheless. Finally, we conclude the week with the University of Michigan Consumer Sentiment report on Friday where the market is likely to focus more on the inflation expectations figures.
