Russell 2000 Technical Analysis – The market fades the trade war fears

Fundamental
Overview

This week has been all
about tariffs. On Monday we opened with a big gap lower as Trump followed
through with his tariffs threats and imposed them on Canada, Mexico and China
over the weekend.

As it’s been the case for
previous tariffs actions though, the market started to cautiously fade the
reaction in expectation of some kind of a deal. That’s exactly what happened as
we got the news on Monday afternoon that the tariffs on Mexico were paused for
30 days after positive negotiations.

The market bounced back
immediately, and the bulls started to build their positions with more
conviction. There’s still the question with China but given that China’s
response has been very soft and we haven’t got any negative news yet, the
market is keeping with the optimism.

The focus now switched to
the US NFP report tomorrow. The labour market data throughout January has been
good, so we might see an overall good NFP report as well. The focus remains on
inflation for the Fed, so even if we get a strong NFP, it shouldn’t change the
Fed’s stance and two rate cuts by the end of the year will continue to remain
the baseline.

Russell 2000
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that the Russell 2000 opened with a gap lower, but the buyers piled in
around the trendline to fade the move and position for a
rally into new highs. The price is now trading near the 2337 resistance. This is where we can expect the
sellers to step in with a defined risk above the level to position for a
pullback into the trendline. The buyers, on the other hand, will want to see
the price breaking higher to increase the bullish bets into a new all-time
high.

Russell 2000 Technical
Analysis – 4 hour Timeframe

On the 4 hour chart,
there’s not much we can add here as the sellers will look for a pullback into
the major trendline, while the buyers will target a break above the resistance.
If we do get a pullback though, the first support zone is standing around the
2290 level.

Russell 2000 Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we have a minor upward trendline defining the bullish momentum on this
timeframe. The buyers will likely continue to lean on the trendline to push
into new highs, while the sellers will look for a break lower to get more
conviction for a pullback into the 2290 level. The red lines define the average daily range for today.

Upcoming
Catalysts

Today we get the latest US Jobless Claims figures, while
tomorrow we conclude the week with the US NFP report.

This article was written by Giuseppe Dellamotta at www.forexlive.com.