SPX500_m slight rebound ahead of US CPI

Markets are bracing themselves ahead of the US CPI data to be released later today.

The SPX500_m hit a weekly low (4461.8) on Wednesday but has managed to rebound to 4476.1 by the end of the day as investors prepare for the important inflation data to be published.

The current market expectations for the July Inflation are:

• Core CPI to be unchanged at 0.2%
• YoY CPI to increase to 3.3%, rising by 30 basis points faster compared to 3.0% YoY in June)
• MoM headline and core CPI to be unchanged at 0.2%

 

How could the SPX500_m react to the US CPI report?

• Any overshoot of the forecasted values may increase chances for another interest rate hike by the Fed. This could potentially drag the SPX500_m down towards the 4400.0 psychologically important level.
• On the flip side, if the CPI data remains unchanged/lower than expected, the SPX500_m bulls may catch a strong momentum, potentially driving the price towards last week’s high at the 4600.0 psychological level.

Meanwhile, Fed officials have been sending mixed signals about their stance on future interest rate policy:

According to the CME FedWatch Tool, the market expects an 86.5% chance of no rate hike at the Fed’s next meeting in September.

From a technical perspective the SPX500_m has been consolidating below the 21-period SMA. The Relative Strength Index (RSI) is positioned in the middle (49.34) of the two boundaries (>70% - overbought, <30% - oversold), indicating a balance between the bulls and bears waiting for the catalyst to occur.

A 50-period SMA lies slightly lower to potentially offer initial support. The 21-period SMA may turn to be a strong resistance level, depending on the strength of the potential upward momentum stemming from today’s CPI report.