Yesterday, the US CPI report came basically in line with expectations as the market was already expecting higher energy prices to push up the August inflation readings. The Core measure, which is what the Fed is focused on, was in line with forecasts with the monthly figure just a touch higher than expected. The core 3-month annualised rate is now 2.4%, which is a good indicator for the Fed that their policy is working well. Now, the question is whether the labour market softens enough to bring inflation sustainably back to target without a recession. And this is something that never happened in history.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 is approaching again the key 1820 support zone. This is where we can expect the buyers to step in with a defined risk below the zone to target a rally into the 1920 resistance area. The sellers, on the other hand, will want to see the price to finally break through the support to pile in and extend the fall into the 1720 level.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more closely the setup near the support zone with the price likely to bounce on the first try as the buyers will be piling in. The big picture remains uncertain and that’s what is keeping the Russell 2000 in a range. We will need some big fundamental catalyst to finally break out of this big range.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that this latest leg lower is diverging with the MACD right when it’s falling into the key support. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, once the price bounces on the support, we might see a pullback into the 1865 swing high level, but if the price continues higher, then the reversal will be confirmed, and the price will go back to the 1920 resistance.
Upcoming Events
Today is likely to be a volatile one given that we are going to see lots of top tier economic indicators released at the same time. In order of importance, we will get the US Jobless Claims, Retail Sales and PPI data. The September FOMC meeting is already a done deal as the market is pricing a 97% probability of a pause, so the data is going to influence the November and December expectations. Tomorrow, we conclude the week with the University of Michigan Consumer Sentiment report.