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S&P 500 defends short-term support

This week, investors will be watching CPI and Fed, as these two key macroeconomic events are anticipated to shed light on future trajectory of interest rates.

So far, the S&P 500 index has defended the 21-day moving average near $3,965. Thus, the short-term trend remains bullish. However, a surge in volatility is expected to come throughout the week amid major macroeconomic events.

All eyes on CPI and Fed

Wall Street is preparing for a busy week, as Tuesday’s release of consumer-price data is anticipated to shed light on the future trajectory of interest rates.

Economists polled by Bloomberg anticipate a 0.3% increase in headline CPI for the second consecutive month, with year-over-year CPI decreasing from 7.7% to 7.5%.

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Wednesday, the Fed will announce its next interest-rate decision at the completion of a two-day policy meeting, with markets anticipating a 0.5% hike in the Fed’s benchmark rate. As a result, market players will closely monitor the Federal Reserve and Chairman Jerome Powell for hints about the future direction of interest rates.

The Fed seeks to steer the economy away from rising inflation without triggering a recession. Despite the possibility of a downturn, Treasury Secretary Janet Yellen told 60 Minutes on Sunday that she anticipates significantly lower inflation by the end of next year.

IMF anticipates falling global debt levels

In a blog post released Monday, the International Monetary Fund (IMF) reported that global public and private debt would fall to 247% of GDP in 2021, down from 257% in 2020. This would be the largest one-year decline in seven decades.

In addition, the IMF stated that strong inflation will continue to lower debt levels in 2023 but advised governments to employ fiscal policies to mitigate inflationary pressures.

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Managing high levels of debt would become increasingly challenging if the global economic outlook worsens, the IMF cautioned.

The positive momentum should continue over the following days, despite a decline below the strong uptrend line. However, there is no bearish pressure. Therefore, the index might continue floating higher.

For the near term, the resistance is expected at around $4,040, where the 200-day moving average (the blue line) is converged with the mentioned uptrend line. A rally above that resistance could mean the medium-term uptrend might resume.

On the downside, the support is located at the 21-day average near $3,965, followed by the next demand zone at the last week’s lows at $3,915.

S&P 500  futures daily chart

S&P 500  futures daily chart, source: author´s analysis, tradingview.com

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