Since the onset of the COVID-19 pandemic, most in the financial community wondered if lagging inflation was soon to become a thing of the past. Unprecedented capital injections from the U.S. FED and government quickly swelled the supply of Greenbacks ― was this the catalyst for USD devaluation? At this point, signs are beginning to point to yes. Today’s Producer Price Index (PPI) report suggests that the prices of commodities are on the rise.

Here’s a quick look at this morning’s PPI figures:

Event                                                            Actual               Projected       Previous

Producer Price Index (MoM, July)              0.6%                     0.3%               -0.2%

Producer Price Index (YoY, July)                -0.4%                    -0.7%              -0.8%

Core PPI (MoM, July)                                     0.5%                    0.1%              -0.3%

The highlight of this group are the Core PPI numbers from July. Prices of goods exclusive of food and energy moved higher by nearly 1% month over month. While not a tremendous market mover, it looks like inflation is poised to grow in the coming months.

PPI Up, USD Down

As has been the theme all year long, the USD is struggling to maintain market share. Rates are down across the majors, with the USD/CAD challenging a key Fibonacci support level.

For the remainder of the week, there are two levels on my radar for the USD/CAD:

• Resistance(1): 78% Fibonacci Retracement, 1.3327
• Support(1): 2020 Low, 1.2951

Bottom Line: As we move into mid-August, it looks like the USD/CAD is going to make a run at yearly lows. Until elected, I’ll have buy orders in the queue from 1.2956. With an initial stop at 1.2919, this trade produces 35 pips on a sub-1:1 risk vs reward ratio. 

On the economic news front, today’s PPI figures are a preview of tomorrow’s CPI numbers. If you’re holding active positions into the Wednesday session, be ready for the CPI report at 8:30 AM EST.