US September PPI change somewhat eased market’s obsession related to the story of global cost-push inflation and pressure on central banks to act. Input prices rose 0.5% MoM, while core PPI, which is more representative of core producer inflation trends, gained just 0.2%, missing estimate 0.5%. This helped to alleviate concerns that a wave of inflation is looming in the US with views arising that the Fed may be less pressured to tighten prematurely.

US jobless claims tumbled to fresh lows since the start of the pandemic. Initial claims fell to 293K suggesting that the positive trend in employment in October is gaining momentum. Continuing claims decreased as well, which, of course, bodes well for October Payrolls change as more people are apparently returning to work.

The dollar has been ceding ground this week, however, in my view, it is premature to talk about a fading of bullish interest. From a technical point of view, the last episode of the dollar rally was able to set a new high (94.55), albeit slightly higher than the previous one (94.50). There is a high chance that the current pullback will leave key bullish support level (93.69) intact:

Another important fact is that according to the CFTC COT data, open interest of aggregated USD positions against G10 currencies in the last reporting week reached 13.9% (maximum in two years) and with such an extreme positioning calls for a long squeeze that we may currently be observing.

The AUD and NZD have posted strong gains this week, thanks to a general recovery in risk demand and signs that investors somewhat discounted China real estate sector issues and contagion effects for China trading partners. Low-yielding currencies rebounded against the dollar, except for the Japanese yen, which continues to weaken persistently, reflecting a growing gap in the outlook for Japanese and US yields for investors, as well as recovery in US equity indices.

The calendar today includes retail sales for September, the report on consumer sentiment from U. Michigan, and the index of activity in US manufacturing. In addition, Fed officials Bullard and Williams are due to speak. By the way, Bullard believes that there is a 50% chance that the increased inflation will not go away and in the light of the upcoming Fed meeting, his speech may lead to strong movements in the market.

As for the retail sales in the US, the monthly dynamics is expected to be -0.2%. Nevertheless, there is a risk that the dollar will retreat a little bit on the release of the report, since the BoFA, which tracks spending on cards, predicts a decrease of 0.6%: