Inflation Data Changes Market Sentiment

US CPI data published yesterday did not meet expectations. Analysts predicted 3.2%, but in fact it turned out = 3.4% (value a month ago = 3.1%). This hardly means a reversal of the large-scale trend toward weakening inflation (a year ago CPI = 6.5%), but to some extent investors have become wary. According to FedWatch, expectations for a rate cut by the Federal Reserve in March dropped to about 65% (before the news was about 70%).

The publication of the news caused a noticeable surge in volatility in financial markets. Let's pay attention to the S&P 500 chart. The index price is within an uptrend (as shown by the blue channel), however, this trend may change:

→ Tops A-B-C form divergence with the RSI indicator — a sign of weakening demand near the upper border of the channel.
→ Yesterday, the price only slightly and briefly exceeded the A-B-C formation, forming top D. That is, a false bullish breakout was formed. This type of price behavior at top D confirms the activity of the bears at the level of 4,800.

Formally, the upward trend is still in force, but 4,800 may become an important test of the bulls’ perseverance. One marker could be today's PPI data (to be published at 16:30 GMT+3), as well as reaction to earnings reports from major banks, including JPMorgan Chase, Citigroup, Bank of America and Wells Fargo.

If they turn out to be disappointing, it is possible that the S&P 500 may fall to the lower border of the ascending channel.

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