Key Takeaways

-August US headline CPI rose 0.4% month-on-month, while core CPI increased 0.3%, strengthening expectations for a September rate increase.

-Markets were pricing an 82% to 85% probability of a Fed rate hike following the CPI release.

-Moderating annual core CPI and already elevated Treasury yields leave room for a more cautious policy approach.

-Higher oil prices remain an additional inflation risk, potentially reinforcing expectations for tighter monetary policy.

-Traders are watching USDX, EURUSD, XAUUSD, SP500 and BTCUSD as markets position around the Fed decision on 17 September.

Markets enter the week with the Federal Reserve at the centre of the outlook as stronger monthly inflation has increased expectations for tighter policy.

August headline CPI accelerated to 0.4% month-on-month from 0.1% previously, while core CPI rose to 0.3%. However, annual core CPI eased from 2.5% to 2.4%, leaving policymakers to balance renewed short-term price pressure against a broader moderation in inflation.

Why Traders Are Watching Global Markets

The latest inflation data has shifted attention towards the Fed’s September decision. Markets were pricing an 82% to 85% probability of a rate increase after the CPI release, although the policy outlook remains dependent on how policymakers assess the persistence of inflation.

The latest available PCE data also provides a mixed picture. July core PCE rose 0.2% month-on-month and 3.3% year-on-year, remaining above the Fed’s 2% objective but showing a more moderate monthly increase than August core CPI.

Treasury yields and oil prices add further complexity. Higher yields can tighten financial conditions and support the US dollar, while sustained oil prices above $100 could add to fuel, transport and production costs.

Key factors influencing markets include:

-Federal Reserve policy: The rate decision and forward guidance could determine the next major market direction.

-US inflation: Monthly CPI momentum will be assessed against the continued moderation in annual core inflation.

-Treasury yields: Further increases could support USDX while creating pressure for gold and equities.

-Oil prices: Elevated energy costs could keep inflation risks in focus.

-Risk sentiment: Changes in rate expectations could influence US equities and other risk-sensitive assets.

Key Movements of the Week

USDX

USDX broke above 98.455 and moved higher as the previous structure completed.

-A sustained move higher could bring 99.50 and 99.75 into focus.

-A new low would require traders to monitor for bullish price action before assuming the broader upside structure has failed.

EURUSD

EURUSD moved lower from the 1.1640 monitored area.

-Continued weakness could bring 1.1530 into focus.

-A recovery towards 1.16588 remains possible, with 1.1635 an important area for monitoring price action.

XAUUSD

Gold remains within a volatile consolidation structure around its recent highs and lows.

-The Fed decision is likely to be the main catalyst.

-A break above 4,510 could shift attention towards 4,600.

SP500

SP500 moved lower and completed its recent consolidation structure.

-Bullish price action around 7,610 could support a recovery.

-A deeper move could bring 7,535 into focus.

BTCUSD

Bitcoin remained under pressure after the previous structure pointed towards further downside.

-If consolidation develops, bullish price action can be monitored around 75,100 or 71,900.

-A break below 82,834.21 would reinforce the downside setup.

What to Watch Next

The Fed decision on 17 September is the main catalyst for the week. A more hawkish stance could support USDX and Treasury yields while increasing pressure on gold and SP500, while a cautious message could ease rate expectations and support risk assets.

Traders should also monitor oil prices above $100 as an additional source of inflation pressure, alongside USDX 99.50–99.75, XAUUSD 4,510–4,600 and SP500 7,610–7,535 for signs of the next market move.

For a deeper analysis of the Fed outlook, upcoming events and technical levels across key markets, read this article.