CPI & FED Rates – The US Dollar Trade (Part 1)
- John Nwatu MSTA CFTe
- Sep 12
- 3 min read
📦 Quick Overview
📊 Theme: CPI results, Fed rate expectations, and USD trajectory
🧭 Macro Signal: Fed cuts likely priced in, but uncertainty remains
📉 Technical Signal: DXY contracting triangle – corrective phase may be near completion
Market Context: CPI, Fed, and What It Means for the Dollar
There’s no shortage of headlines and speculation around US CPI data and potential Federal Reserve rate decisions. These are the catalysts that move global markets — particularly the US Dollar, bonds, gold, and risk-sensitive FX pairs like AUDJPY.
The August CPI print came in at 2.9% YoY, in line with expectations. While not definitive proof that inflation is under control, it does open the door for the Fed to consider cutting rates — perhaps sooner than previously expected.
According to IG, market pricing reflects an 88% probability of a 25-bps rate cut, which helps explain why the US Dollar Index (DXY) has been gradually softening throughout the year.
DXY Price Action – What the Market Is Telling Us
The dollar hasn’t collapsed — but it has been softening in a corrective 3 wave structure. The market appears to be pricing in a cut, while also grappling with uncertainty around the Fed’s exact path.
That uncertainty is reflected in the contracting triangle pattern developing on the daily DXY chart — a structure that’s been forming since May 2025.
From a technical perspective:
✅ The long-term trend in DXY remains bullish
📉 The current move appears to be Wave 4 of an ongoing impulse wave
🔻 ADX is low, indicating weak trend strength — common in corrective phases
⚠️ Price is compressing inside a contracting triangle — typically a continuation pattern
The Elliott Wave count suggests we may be nearing the 5th and final leg of this trend. Once completed, a bullish breakout could resume the larger uptrend.
However, a decisive break below the triangle — particularly in response to a confirmed rate cut or unexpected macro event — could open the door for a deeper retracement or an overall trend shift.
📝 Trading Considerations
❗ Caution when shorting the dollar: Despite weak momentum, the primary trend remains up
🔁 A breakout above triangle resistance could signal a continuation of USD strength — especially if the Fed holds rates
🔮 Macro Implications: What Comes Next?
If the Fed does cut, we may see:
📉 Further USD softness — though likely limited without additional catalysts
📈 Tailwinds for Gold, Equities, and Risk FX (e.g. AUD, NZD)
💰 Increased demand for yield alternatives and commodity-linked currencies
If the Fed holds or sounds more hawkish:
⚡ A potential short squeeze in USD
🧨 Pullback in gold and risk assets
📉 Renewed pressure on risk-on FX pairs
This triangle in DXY isn’t just technical — it’s the price reflection of uncertainty around Fed policy. Whichever way it breaks could define the next major move across asset classes.
Final Word
The CPI print has cleared some fog, but not all. The market is leaning toward a rate cut, and the US Dollar is reflecting that via a contracting price range. But until that resolves and Wave 4 completes with a breakout, the next move in DXY is still in development.
This is a classic “wait-for-structure” setup — and the payoff may be worth the patience.
📬 In Part 2, we’ll dive into Bonds — and how they’re aligning with the same macro theme.
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