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Indices in the balance before CPI release

Traders and investors are eagerly awaiting today’s Consumer Price Index (CPI) data release to see whether inflation has peaked (as many central bankers have been claiming) or whether inflation will remain stubbornly high in the US for the remainder of the year.

Last Friday’s bumper jobs numbers gave some analysts the confidence to believe that a recession is not as close as the official numbers suggest and that the economy is not doing as badly as people think.

This is why traders and investors eagerly await the consumer price data, as it will provide clarity on whether the Fed might ease off slightly in its inflation fight and provide a better footing for the economy to stabilise and grow.

There were some encouraging signs for the Fed on the prices front, with a New York Fed survey on Monday showing consumer inflation expectations fell sharply in July.

A look at the commodities markets may provide signs that inflation has peaked. However, how and how long it will take for that benefit to pass to the consumer remains to be seen.

When we look at the technical picture, we see that the US equity indices are sat at inflection points, waiting to determine their next direction. Its possible that the CPI number may assist with that decision.

Even the announcement today by President Biden of the signing of his bill committing $280 billion (£232 billion) to high-tech manufacturing and scientific research for chip manufacturers was not enough to keep indices afloat on Tuesday.

S&P E-mini futures

1D chart for S&P 500 E-mini futures (Source: OvalX)
Historical performance does not guarantee future profits

The S&P E-mini futures daily chart above shows the price has been in a steady decline since the start of 2022. Furthermore, the price has developed its downward trajectory into a clear downward channel – with significant touches of the lower support line this year. We now see ourselves at the top of the downward channel, an inflection point where the market must decide whether to maintain the existing narrative or break to new recent highs.

If we look at the price action of the last couple of days, we can see that the price has rejected the upper channel - so far. Wednesday’s CPI numbers will provide the catalyst for markets to make a decision on its next direction.

NASDAQ 100

1D chart for US 100 Index (Source: OvalX)
Historical performance does not guarantee future profits

You can see that the NASDAQ daily chart is very similar to the E-mini one above. That price has been in a downtrend all year, and its route of travel has been shaped by the downward channel.

Unlike the E-mini chart we see that the NASDAQ daily chart has so far punctured the upper channel, but is now drifting lower, and back into the upper channel. Traders will be focused on whether that trendline has now flipped from being resistance to being support – what many technical traders would call “kissing the trendline goodbye” before it moves higher.

Or will the price fall further back down to the blue 20 period moving average? We shall find out by the end of the week.

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Please note that the presented content refers to the Oval group which contains two legal entities: Monecor (London) Limited authorised and regulated by the UK Financial Conduct Authority (FCA) with Financial Services register number 124721. Monecor (Europe) Limited authorised and licensed under the Cyprus Securities and Exchange Commission (‘CySEC’) with license number 096/08.