The S&P 500 is holding its range as traders hedge and cut leverage before the Federal Reserve’s rate decision tomorrow, with the US-Iran ceasefire still in place. InvestingLive reads the latest weakness as positioning rather than fresh Middle East news, and sees room for a short-term relief rally if the Fed avoids a hawkish surprise. The index is approaching 7,357, the first key swing level that could act as support.
The S&P 500’s latest weakness looks more like hedging and deleveraging ahead of tomorrow’s FOMC decision than a reaction to fresh Middle East news, according to InvestingLive analyst Giuseppe Dellamotta. The ceasefire is still intact and diplomatic efforts are ongoing, although things can change on a dime.
Overcrowded positioning has driven deleveraging
The index has been mostly rangebound this month as the US-Iran crisis brought back inflation and growth risks. That has happened amid overcrowded stock market positioning, which has led to deleveraging across the board.
Wall Street gave a mixed lead overnight, with the Nasdaq closing down just 0.2% and futures tracking that index pointing to a 1% drop at Tuesday’s open.
The Fed decision sets the near-term direction
Policymakers are expected to hold interest rates steady, but one or two dissenters might vote for a rate hike at this meeting already. Forward guidance will likely stay limited again under Fed Chair Warsh, while recent comments from policymakers point to the pace of monthly inflation increases dictating any tightening.
Therefore the reaction hinges on the Middle East staying calmer and the Fed delivering on expectations. If both hold, Dellamotta sees room for a relief rally in the short term, with the next legs driven by US-Iran developments and US inflation releases.
7,357 is the level traders are watching
On the daily chart, the index is approaching the first key swing level at 7,357, which could act as support. Buyers may step in around that level with defined risk below it to position for a rally into new record highs, while sellers would look for a break to increase bearish bets into the major support zone around 7,200.
Shorter timeframes tell the same story. On the four-hour chart, a minor downward trendline defines the bearish momentum. On the one-hour chart, a break below the recent low at 7,412 could see the sellers piling in to extend the drop into the 7,357 level.
Consumer confidence, PCE and GDP round out the week
Before the Fed, today brings the US Consumer Confidence report and a Trump-Netanyahu meeting. Thursday delivers the US PCE price index, the Advance Q2 GDP and the Jobless Claims figures, and Friday closes the week with the US Q2 Employment Cost Index.
Sources: InvestingLive, Financial Times
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