Dollar Bounce Looms as Inflation Data and ECB Meeting Approach

The US dollar has been falling sharply, but technical analysis suggests that the stage is set for a potential rebound. The upcoming release of US PPI and CPI data, along with an ECB meeting, could provide the catalyst needed to spark a near-term bounce in the dollar.

Futures traders remain heavily long the US dollar, according to the latest Commitment of Traders (COT) data, which could help fuel a rebound if incoming data comes in slightly hot. However, a longer-term bearish bias remains for the USD, based on the assumption that lower highs have formed in 2022, early 2025, and June this year.

A technical case can be made for a near-term bounce in the dollar from a purely technical perspective, with potential reversal signals forming on several FX majors. The EUR/USD appears to be forming a rising wedge, while USD/CAD has formed a bullish RSI (2) divergence and a two-bar bullish reversal.