Dollar Due for Bounce as PPI and CPI Loom

The US dollar has been falling sharply, but technical indicators suggest that it may be due for a near-term rebound. The US is set to release its producer and consumer price indices (PPI and CPI), which could provide a catalyst for a bounce in the dollar if inflation data surprises to the upside.

Futures traders remain heavily long the US dollar, with asset managers and large speculators holding around 33k contracts of DXY futures. This positioning could help the dollar rebound over the near term if incoming data comes in slightly hot.

Looking at technical analysis, a doji has formed on the daily DXY chart, which is holding above the August low and a high-volume node (HVN). A similar setup is forming on USD/CAD, with Wednesday's two-bar bullish reversal holding above the May VPOC and August low.

The inflation pipeline was already showing signs of stickiness before the latest rise in crude oil prices. Unprocessed intermediate goods are up 9.9% YoY, while processed intermediate goods remain elevated at 7.3%, compared with 4.9% for final core goods.