Key Points
- August headline CPI is expected at 0.4% month-on-month and 3.4% year-on-year, while core CPI is forecast at 0.2% month-on-month and 2.4% year-on-year.
- July headline CPI was 0.1% month-on-month and 3.4% year-on-year, while core CPI was 0.2% month-on-month and 2.5% year-on-year.
- A strong core CPI could strengthen expectations for a September Fed rate hike and support the US dollar.
- A cooler CPI reading could reduce Fed hike expectations, potentially weighing on USDX while supporting gold and US equities.
Market Move
USDX has experienced an intraday shift in momentum. The index pushed toward 98.80 and briefly reached 98.808 before rolling over. The subsequent decline produced a sequence of lower highs and lower lows, taking the index to 98.741.
Price has recovered to 98.766, while the 9-period moving average has flattened and begun turning higher, indicating near-term selling pressure potentially easing.
Why Traders Are Watching
The dollar index held above 99 on Friday after rebounding in the previous session.
This comes before the highly anticipated Consumer Price Index (CPI) release on Friday, which will provide further signals on the possibility of a Federal Reserve rate hike.
Following Thursday’s stronger PPI data, market pricing for a 25-basis-point September hike had risen from about 65% to around 70%.
Core CPI is likely to be particularly important. A 0.4% core CPI would increase the likelihood of a Fed rate hike, while 0.2% would be broadly in line with expectations.
Treasury yields also spiked after the US Treasury Department’s first expanded buyback operation yielded purchases short of expectations.
Traders should closely monitor USDX, Treasury yields, gold and US equity indices as a hotter CPI could lift yields and the dollar while pressuring gold and equities. Conversely, a cooler report would weigh on the dollar.
Additional market factors include oil prices as it recently jumped above $100 a barrel as Middles Eastern tensions develop, raising concerns over prolonged disruptions to global energy supplies and inflation.
Key Trading Levels
| Level | Type | Significance |
| 98.808 | Resistance | Session high; a break above would strengthen the bullish outlook |
| 98.789 | Resistance | Key near-term resistance and recovery zone |
| 98.78 | Resistance | Upper end of the immediate consolidation area |
| 98.75 | Support | Short-term support and moving-average area |
| 98.741 | Support | Session low; a break below would reinforce bearish momentum |
Currently, 98.808 is the session high, and a decisive break above it would strengthen the bullish outlook.
The 98.789 and 98.780 form the immediate resistance zone that USDX needs to reclaim to sustain its recovery.
On the downside, 98.750 provides short-term support around the moving-average area, while 98.741 is the key session low. A break below 98.741 would signal renewed bearish momentum.
Bullish and Bearish Setups
| Setup | Trigger | Significance |
| Bullish | Hold above 98.750, reclaim 98.789 and break 98.808 | Signals stronger upside momentum; a hotter-than-expected CPI could reinforce the move |
| Bearish | Rejection below 98.789, followed by a break below 98.750 | Signals weakening recovery and renewed selling pressure |
| Stronger Bearish | Break below 98.741 | Confirms a fresh intraday low and strengthens the downside bias, particularly if CPI is softer than expected |
The bullish scenario depends on USDX holding above 98.750 and breaking 98.808, particularly if CPI exceeds expectations.
The bearish setup develops if the rebound fails below 98.789 and price falls through 98.750.
A break of 98.741 would signal renewed downside momentum, particularly following a soft CPI report.
Disclaimer
The price levels and market scenarios above reflect the author’s assessment at the time of writing. They do not represent financial advice or an official recommendation from VT Markets. Traders should conduct their own analysis and manage risk carefully.
USDX Prediction: What’s Next?
USDX currently has a neutral-to-mildly bullish short-term bias. The recovery from 98.741 is noteworthy, but confirmation requires a break above 98.808.
The upcoming CPI will act as the key catalyst. A 0.3%–0.4% core CPI reading could strengthen Fed hike expectations and favour USDX, while a softer result could push the dollar lower.
The latest forecast shows that the market is already pricing a probability of a September hike, making the CPI reaction particularly important.
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FAQ
What is the CPI forecast?
The U.S. Consumer Price Index (CPI) is forecasted to rise slowly, with short-term forecasts around 3.36% and long-term trends pointing to small increases through 2028.
What was the previous reading?
For July 2026, CPI for All Urban Consumers rose by 0.1% seasonally adjusted (SA) and by 3.4% over the last 12 months, not seasonally adjusted (NSA). Overall, the CPI reflects a slight increase in prices, with food and energy prices contributing to the price hike.
What happens if CPI is hotter than expected?
Higher inflation could increase expectations for a Fed hike, potentially supporting USDX and Treasury yields.
What happens if CPI is cooler?
A softer CPI could reduce near-term hike expectations, potentially weakening USDX while supporting gold and US equities.
What should traders watch on the chart?
98.808 is the key upside breakout level, while 98.741 is the key downside level. A break of either could signal the next direction.
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