US500: Braces for mid-week double whammy

• US500 ↑ 13% since start of 2024

• Index could be rocked by US CPI/Fed combo
  

• Over past year Fed meeting triggered moves of ↑ 2% & ↓ 0.8%
  

• Prices bullish on D1 but RSI overbought
  

• Technical level – 5400

It would be a crime to overlook FXTM’s US500 on such a big day for global markets.

After hitting a new all-time high yesterday, the index could be injected with fresh volatility thanks to a rare US CPI and Fed combo.

Note: US500 tracks the S&P 500 index – the benchmark used to measure the stock performance of the largest listed US companies.

Since last Friday, we have hammered at the importance of these two events and their potential impacts on financial markets. Still, US equities continue to march higher despite the growing sense of caution. This may be based on Apple stocks surging to fresh all-time highs.

But the key question is whether US500 bulls can maintain their hunger for more gains…

The US Consumer Price Index (CPI) is forecast to rise 3.4% in May, unchanged from April. At the same time, the annual core is forecast to have cooled to 3.5% – its lowest since April 2021.

• Should the inflation report print above expectations, this may further push back Fed cut bets – hitting the US500.

Traders are currently pricing in a 58% probability of a 25-basis point cut in September with this jumping to 89% by November.

Golden nugget: Over the past year, the US CPI report has triggered upside moves of as much as 0.7% or declines of 0.5% in a 6-hour window post-release.

A few hours after the CPI report will be the Fed decision which is widely expected to conclude with rates unchanged. However, all eyes will be on the economic projections including the “dot plot” which could potentially rock markets.

• The new dot plot is expected to show two 25-basis point cuts in 2024 compared with the three projected in March. If the dot plot shows only one 25 basis point cut or none for this year, US equity bulls could be in trouble.

Golden nugget: Over the past year, the Fed has triggered upside moves of as much as 2% or declines of 0.8% in a 6-hour window post-release.

Looking at the technical picture

The US500 is firmly bullish on the daily charts with prices trading above the 50, 100, and 200-day SMA. However, the Relative Strength Index (RSI) is a whisker away from 70 – indicating that prices are overbought.

• A solid breakout above 5400 could encourage a move toward the next psychological level at 5500.

• Should 5400 prove reliable resistance, prices may slip back towards 5320 and 5270.