Piece written by Alexa Smith, Trive Financial Market Analyst 

The S&P500 Futures (CME: ES) stand at an intriguing juncture, poised for a pivotal response to today’s unveiling of July’s US year-on-year inflation figures. Core inflation is anticipated to hold steady at 4.8%, while headline inflation is expected to increase by 30 basis points to 3.3%. A plunge in both core and headline inflation may set the futures to reembark on an upward trend, while an acceleration could warrant the need for further interest rate hikes by the Fed and send the index into a frenzy. 

Meanwhile, a recent decline in the trend of the Futures ignites curiosity about the market’s future trajectory. The Federal Reserve has already raised rates by 525 basis points since the commencement of its tightening cycle to counter persistent inflation; hence uncertainty pertains to whether more can be expected. The day also holds the release of initial jobless claims, which could also influence the trajectory as the Fed holds out for recovering labour market data. 

Technical 

A downtrend was solidified when the S&P500 Futures breached below the 50-day moving average; however, the price action has been unable to break down the 4492.75 support level ahead of the US inflation data. If the US inflation data warrants the need for further rate hikes by the Fed, a breakdown of this support level may be pivotal in driving downside momentum towards the 4413.50 major support.  

However, a surge stemming from supply constraints could guide the futures higher if fundamentals align. If upward momentum is sustained, the price action may be encouraged to retest the 4530.50 resistance with a breakout, possibly prompting a further leg up towards the 38.20% Fibonacci level. A breakout from the 4544.75 resistance at the 38.20% Fibonacci level may serve as a pivot point for a reversal towards the 4628.75 major resistance. 

Summary 

The key driver of sentiment will be the US inflation data, with deflation encouraging a possible leg up towards the 4544.75 resistance at the 38.20% Fibonacci level. In contrast, a jump in headline inflation and sticky core inflation could expose the index futures to further downside possibilities, leaving the 4492.75 support as a barrier towards the 4413.50 major support.  

Sources: US Bureau of Labor Statistics, Reuters, TradingView 

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