The Australia 200 index is at a crucial point. Action over the next couple of trading sessions could determine the market direction for weeks or months to come. Tonight in the US a CPI release could have more impact on Australian shares than those in North America.

For almost three months the Australian share market has observed a surprisingly narrow range between 5,660 and 5,825. Trump/Jong-un sabre rattling is rattling investor nerves. The sharp sell off overnight pushed the Australia 200 index to the bottom of the range. This means the inflation data released tonight in the US could determine whether the index bounces off 5,660 or breaks down through the level to start a new down trend.

However it's likely that good news is bad news and vice versa. In a slow growth / low inflation environment a stronger inflation read would be welcomed by economists. The US Fed would either stiock to it's current tightening timetable, or rachet it up a notch. This in turn could spark a stampede out of stocks, and a negative lead from Wall St may bust support for the Australia 200 index. In contrast, a lower than expected read points to lower than forecast interest rates for longer. This could see investors piling back into shares, prompting the Australia 200 index to bounce off the 5,660 support and remain in the range.

The number to watch is CPI ex Food and Energy Year-on-year. Expectations of a July result   in line with June's 1.7% means the likely lines in the sand are 1.5% and 1.9%.

Seatbelts on.