Daily Forex: U.S. Dollar (DXY) Back In Focus As Traders Wait For PPI Data

Key Insights

• Today, traders will focus on PPI data from the U.S., which may have a significant impact on currency dynamics. 
• The tense situation in the European natural gas markets may put more pressure on the euro. 
• USD/CAD has a good chance to test new lows if oil prices continue to rebound. 

Traders should expect more volatility today as markets will react to the new portion of the U.S. inflation data. Meanwhile, commodity-related currencies may have a chance to gain some ground as oil is trying to rebound from lows after the recent EIA report.

U.S.

The main event of the day for currency traders is the release of Producer Prices data from the U.S. Analysts expect that Producer Prices increased by 0.2% month-over-month in July. On a year-over-year basis, Producer Prices are projected to grow by 10.4%. Core Producer Prices are expected to increase by 0.4% month-over-month.

Yesterday, weaker-than-expected inflation data put significant pressure on the American currency. The FedWatch Tool indicates that there is a 56.5% probability of a 50 bps hike at the next Fed meeting. Before the inflation data was released, markets prepared for a 75 bps hike.

Today’s Producer Prices data will have a material impact on currency market dynamics. In case PPI is weaker than analysts expected, DXY will find itself under more pressure and may settle back below the 105 level.

Europe

EUR/USD has recently made an attempt to settle above the 1.0300 level but failed to gain sufficient upside momentum and pulled back.

There are no important economic reports scheduled to be released in the Euro Area today, so traders will be focused on general market sentiment and developments in the European natural gas market.

European countries have already started to implement energy-saving measures, but natural gas prices managed to gain upside momentum after a period of consolidation.

This is dangerous for the European economy as higher energy prices will force Europe to cut energy consumption, which will have a direct negative impact on GDP and hurt EUR/USD chances to rebound.

Canada

USD/CAD is trading near monthly lows. Traders must monitor the dynamics of oil prices, which may provide additional support to the Canadian currency in case the oil market continues to rebound from the recent lows.

For a look at all of today’s economic events, check out our economic calendar.