Mapping the Market: US inflation expectations may be nearing a big technical test

• Two-year breakevens fell from a May peak around 3.15% to 1.85% after this week's inflation data
• The 1.85% level sits inside longstanding structural support spanning 1.75% to 1.90%
• A sustained break below this zone could point back toward pre-2020 inflation expectations, which often ranged between 1.0% and 2.0%

U.S. inflation expectations, which spiked when the Iran war began, have been sliding for more than two months — and technical analysis indicates that reassuring data on price growth this week may be pushing them toward a pivotal breaking point.

Investors gauge near-term inflation expectations using two-year breakeven rates, calculated as the gap between yields on standard Treasuries and Treasury Inflation-Protected Securities. These breakevens jumped in March and April after U.S.-Iran hostilities erupted, topping out near 3.15% in early May. They then tumbled to around 1.94% before ticking back up as concerns grew over a re-escalation of the conflict.

Tuesday's report showing consumer prices fell 0.4% in June restarted the decline, pulling the breakeven rate down to 1.85%. That puts it squarely inside a zone technicians call structural support — a price band where a market has repeatedly struggled to break through in either direction. Here, that band spans roughly 1.75% to 1.90%, and has acted as a floor since August 2024 and a ceiling back in January 2020.

A decisive move below this support could signal that the market anticipates a return to the calmer inflation expectations that prevailed before the pandemic, when breakevens typically ranged within the 1.0% to 2.0% zone.