Dollar Bounces Ahead of Inflation Reports and ECB Meeting

The US dollar has been falling sharply, but technical analysis suggests that it may be due for a near-term rebound. The upcoming PPI and CPI reports, along with an ECB meeting, could provide the catalyst for this bounce.

According to Commitment of Traders (COT) data, futures traders are still heavily long the US dollar, which could help support a rally if inflation data surprises to the upside. However, some analysts remain bearish on the dollar in the longer term, citing lower highs formed in 2022 and this year.

Looking at technical charts, a doji formation has appeared on the daily DXY chart, holding above the August low and a high-volume node (HVN). This setup is similar to one forming on USD/CAD, which could indicate a potential bounce in the pair. Meanwhile, EUR/USD appears to be forming a rising wedge, while USD/JPY has been identified as an oversold candidate.

While some investors may be expecting a modest upside surprise in PPI or CPI, it's worth noting that crude oil prices have been rising since early August, and much of their gains may not become apparent in these reports until next month. However, money managers 'of size' are likely already factoring this in, which could make markets more sensitive to any upside surprises.