US500 – Record Highs Meet Today's Inflation Test

The S&P 500 trades around 7,733 today, a little below this week's record highs. The daily range so far is only a few points. That happens when traders stop opening new positions and wait, and today they're waiting for one number. The US releases its inflation report at 12:30 UTC+0. For a market at these levels, it's the most important release of the week.

Here's the background. Last week's jobs report was very weak, and traders cut the chance of a September Fed rate hike to about 44%. Lower expected rates helped stocks reach new highs. Today's inflation data can either support that view or damage it. Forecasts expect prices to rise 0.2% during July, and annual inflation to ease slightly to 3.4% from 3.5%. That sounds calm, but there's a catch. In June, inflation fell mainly because fuel was cheap after the ceasefire. In July, oil rose about 21% because of the Strait of Hormuz. Today's report is the first one that may show that increase.

So which number matters more? Traders will watch two of them. The headline figure includes fuel and food, so it moves with oil prices. The core figure removes fuel and food, so it shows the deeper trend. Wells Fargo expects core prices to rise 0.24% for the month, faster than in June. If both numbers come in soft, the market gets what it wants: weak jobs, calm inflation, and no reason for the Fed to raise rates. If core inflation comes in hot, a September rate hike returns to the table, and a market this high has more room to fall than to rise.

US500 key levels: 

• Resistance: 7,780, then 7,830 
• Support: 7,700, then 7,630 

Watching: today's inflation report at 12:30 UTC+0, oil prices, the Fed meeting on 15–16 September.

By Born2trade market research department

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