US Dollar mixed and flat with traders awaiting US inflation

• The US Dollar is mixed on the quote board, with marginal gains or losses against most important currencies.
• All eyes are on inflation data being published later this Wednesday. 
• The US Dollar Index was unable to break the high of Monday on Tuesday's close and could mean issues going forward. 

The US Dollar (USD) will be a difficult currency to trade this Wednesday, and not just because of the US inflation numbers. Rather because of the fact that these inflation numbers are for the month of August, while in the past two weeks a lot of elements have changed and might actually see current numbers being obsolete.

Traders will be specifically watching both the Core and headline Consumer Price Index (CPI) on a monthly basis. The Monthly Core is expected to stay steady at 0.2%, whereas the overall inflation index is expected to rise from 0.2% to 0.6%. So it looks like the US Dollar might weaken a bit, as core inflation is declining. 

The element that could send the Greenback all over the place is the fact that the energy part of it was in deflation during the last few prints.  Recent production cuts from Saudi Arabia and other OPEC+ members have seen oil prices shooting through the roof. The recent rise in prices at the gas pumps could mean that this Wednesday’s number is not a correct reflection of where US inflation is actually at this moment.

Daily digest: US Dollar mayhem

• Ahead of the US inflation numbers, on the other side of the Atlantic Ocean traders have cemented the possibility of one more hike from the ECB for 2023, where just a few days ago hikes were no longer expected.
• The US session will kick off at 11:00 GMT with the Mortgage Bankers Association (MBA) printing its Mortgage Applications for the week of September 8. No consensus is forthcoming, while the previous week was at -2.9%.
• The biggest chunk of data will come at 12:30 GMT with the US Consumer Price Index (CPI) for August in all its forms and time frames: The Monthly Core (ex. food and energy) is expected to stay steady at 0.2%, while the headline index is expected to jump from 0.2% to 0.6%. On a yearly basis the Core Index is expected to head lower from 4.7% to 4.3%, with the headline index heading from 3.2% to 3.6%.
• Back to the normal schedule for Wednesday: around 14:30 GMT the US Energy Information Administration (EIA) will give its latest number for the crude stockpile movements. Expectations are for a smaller drawdown from 6.307 million to 1.912 million barrels less. 
• Expect to see yields being supported again with this time a 30-year bond auction due to be placed in the markets near 17:00 GMT from the US Treasury department. 
• Equities are going nowhere and await US inflation numbers. 
• The CME Group FedWatch Tool shows that markets are pricing in a 93% chance that the Federal Reserve will keep interest rates unchanged at its meeting in September. 
• The benchmark 10-year US Treasury bond yield trades at 4.29% and remains elevated even after the step back on Monday. 

US Dollar Index technical analysis: End of the Indian Summer?

The Greenback failed to find enough US Dollar bulls in order to erase all the losses from Monday. Traders rather sent the US Dollar Index (DXY) back to square one, making it a flat week ahead of the US inflation numbers. Expect the expected decline in inflation to lead to some US Dollar weakness. 

The new high to watch is at 105.16, both the high from last Thursday and the six-month high. The US Dollar Index first needs to gain back its lost territory from this Monday and break above the high of 104.93. Beyond 105.16, the next level to watch is 105.88, the high of 2023.

On Monday, 104.44 kept it together and refrained from allowing the DXY from selling off any further. The high of August 25 did its job and acted as a pivotal level. Should the uptick from this Tuesday reverse and 104.44 gives way, a substantial downturn could take place to 103.04, where the 200-day SMA comes into play for support.