The US Bureau of Economic Analysis is due to release August Personal Consumption Expenditures (PCE) Price Index data on Wednesday at 12:30 GMT, a report watched because it is the Federal Reserve’s preferred inflation gauge. Forecasts call for core PCE, which strips out food and energy, to rise 0.3% month on month after July’s 0.2%, while the year-on-year rate is seen at 3.4% versus 3.3% previously. The Fed lifted rates by 25 bps in September, taking the target range to 3.75%–4.00% in a unanimous decision, after PCE inflation reached 4% in early 2026 and remained above the 2% goal.
Energy dynamics are in focus: crude oil is roughly 50% above pre-war levels, while flows through the Strait of Hormuz recovered to about 80% of pre-war volumes in September. FedWatch has markets pricing hikes in October and December, with the implied probability for October at 72.5%. A stronger PCE print would typically support the US Dollar (USD), while a weaker reading could weigh on it, and the US Dollar Index (DXY) is trading just below its yearly high of 101.80. In FX, EUR/USD has been trading around 1.1350, with nearby reference points at 1.1324 support, then 1.1200, and resistance at 1.1400 and 1.1470.
Outlook for Fed Policy and the US Dollar
Today’s release of the August PCE Price Index is the critical catalyst we need to watch, especially with core inflation projected to tick up to 3.4% year-over-year. Because the Federal Reserve recently raised its policy rate to a range of 3.75%–4.00% in September, any upside surprise will likely lock in another rate hike for October, where market odds currently stand at 72.5%. We recommend that derivative traders position for continued strength in the US Dollar (USD) as the central bank fights to bring inflation back down to its 2% target.
Commodity and Currency Trading Strategies
We must also navigate the broader commodity market, where crude oil prices remain highly volatile and sit about 50% higher than pre-war levels. Even though oil transit through the Strait of Hormuz has recovered to 80% of its normal capacity, the ongoing regional conflict suggests that energy-driven inflation is here to stay. To hedge against this persistent pressure, we suggest utilizing long call options on energy futures to capture sudden spikes in crude prices over the coming weeks.
In the currency markets, we see a clear opportunity to short the EUR/USD pair, which is currently struggling in the 1.1350 range. The pair is trading well below its 20-day and 100-day Simple Moving Averages, indicating strong downward momentum and heavy selling interest. We should target a break below the June low of 1.1324, which would expose the key 1.1200 support zone and offer highly profitable entry points for put options.
For tactical execution, we favor buying out-of-the-money EUR/USD put options with expiration dates set for late October. Historical data shows that when the US Dollar Index (DXY) trades near yearly highs—currently just below 101.80—strong macro data routinely triggers rapid breakouts. By structuring bearish vertical spreads, we can cap our premium costs while maximizing gains as the Greenback continues its upward trajectory.
