Fundamental Overview
The
US CPI report on Wednesday came in line with expectations and sealed the 25 bps cut next week. That helped the Russell 2000 as the hedges into a potentially hot CPI got unwound. The gains though were short lived. The
US PPI yesterday surprised to the upside and weighed on the sentiment as inflation fears keep the bullish momentum at bay.
Overall, the market’s pricing remains largely unchanged around three rate cuts by the end of 2025 and we will likely need stronger evidence of inflation re-accelerating to price out the remaining rate cuts.
Next Wednesday, we have the FOMC decision, and although the central bank will likely match the market’s pricing, we could have an overall hawkish event. The market participants might want to err on the defensive side which could limit the upside in the market.
In the bigger picture, Trump’s policies should be a positive driver for growth in 2025 and with the Fed remaining in an easing cycle, growth should remain positive and might even accelerate as seen already by the Atlanta Fed GDPNow indicator.
The risk in 2025 will be inflation and the Fed’s reaction function. Right now, the Fed’s reaction function is that a strong economy would warrant a slower pace in the easing cycle and not a tightening. That should still be supportive for the stock market.
If the Fed’s reaction function were to change to a potential tightening, then that will likely trigger a big correction in the stock market on expected economic slowdown. For now, we remain in a “buy the dip” environment.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 continues to pull back as we head into the FOMC decision next Wednesday. From a risk management perspective, the buyers will have a better risk to reward setup around the 2290
support. The sellers, on the other hand, will want to see the price breaking below the support to extend the correction into the major trendline around the 2200 level.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the recent price action formed what could turn out to be a
bull flag. The buyers will want to see the price breaking above the top
trendline to pile in for a rally into new all-time highs. The sellers, on the other hand, will likely lean on the top trendline to position for a drop into the 2290 support.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor downward trendline defining the current bearish momentum on this timeframe. The buyers will want to see the price breaking higher to target the top trendline of the bull flag.
The sellers, on the other hand, will likely lean on the trendline to target a break below the bottom trendline of the bull flag and increase the bearish momentum into the 2290 support. The red lines define the
average daily range for today.
This article was written by Giuseppe Dellamotta at
www.forexlive.com.
