US indices have come to a screeching halt after the benchmark S&P 500 lost out over a percentage point ahead of the FOMC interest rate decision later today.
It is widely expected that the US Federal Reserve will raise interest rates by another 25 basis points today to try and curb its sticky inflationary environment. Market participants will look for signs in the press conference scheduled 30 min after the interest rate announcement whether Fed will signal a pause in its 14-month-long tightening cycle. This could be a slippery slope as the central bank has to juggle the need to slow inflation against a risky backdrop of banking failures and a possible debt default.
Technicals
If we look at the Dow/ Transportation relationship of old, we are keeping a close eye on the modern-day equivalent, the Russel 2000, as a leading indicator to the S&P 500. It is clear from the chart below that the Russel (green line), which has lost over 3% since the start of April, has rolled over and is heading towards a significant support level. The S&P 500 (red line) has remained flat over the same period and could potentially start to break its uptrend and follow suit.
S&P 500 Technical Outlook
To outweigh the much-anticipated volatility expected after the FOMC rate announcement, we zoom out to the Daily timeframe on the S&P 500 futures (CME: ES) contract to find levels of interest.
If the anticipated 25 basis point rate hike comes to fruition, then we could expect the US Dollar to continue on its upward trajectory, which could, in turn, see Indices lower. If this is the case, we might look for a retest of the major support levels around 4102 and even lower at 4080. If the bulls do step up on any indication from Fed chair Powell that rate hikes will hit pause soon, we could potentially see higher levels targeted once again. The significant overhang resistance level to watch is around 4210, which needs to be broken to negate the current downtrend.
Sources: Reuters, Koyfin, TradingView
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