Home Forex Market Analysis US Dollar Index (DXY) Forecast as Risks Remain Elevated

US Dollar Index (DXY) Forecast as Risks Remain Elevated

US Dollar Index (DXY) Forecast as Risks Remain Elevated

The US dollar index (DXY) had a strong week as investors focused on the rising risks globally. The index surged to a high of $94.50, which was the highest level since the fourth quarter of 2020. On Monday morning, the index was trading at $94, which was about 0.50% below last week’s high.

Global risks remain

The US dollar index is a benchmark that measures the strength of the greenback. The index key constituents are currencies like the euro, Swiss franc, sterling, and the Japanese yen. It is often viewed as a safe haven because of the important role that the American economy plays in the world.

Last week, the US dollar index rallied as global risks rose. First, there was the risk that the House of Representatives would not vote for the bipartisan infrastructure bill. It did not as a war of words between progressives and moderate democrats continued. 

Second, there was the risk of Evergrande after the company failed to pay its interest premium. On the positive side, the company announced that it will raise more than $1 billion by selling its stake in a bank to a state-owned bank. It will still have a 14% stake in the bank.

Third, the dollar index rose as the debt ceiling debate continued. Senate Republicans have opposed any measures to expand or suspend the debt ceiling in order to fund some of the ambitious programs by Democrats. There is a possibility that these risks will remain this week.

Fourth, there was the risk of higher energy prices as the price of coal and natural gas skyrocketed. These problems will continue this week. Recent data shows that India has only three days of stocks of coal, meaning that the country’s cost of living will rise.

Key economic data ahead

The US dollar index will react to several key numbers scheduled for this week. First, the most important of these numbers will be the American non-farm payrolls (NFP) data scheduled for Friday this week. 

Economists polled by Reuters expect the data to show that the country added more than 460k jobs in September after adding 235k in the previous month. They also expect that the country’s unemployment rate declined from 5.2% to 5.1% while wages rose from 4.3% to 4.6%. 

On Wednesday, ADP Institute will publish the private payrolls numbers that will have a modest impact on the US dollar index. The US will also publish the latest initial jobless claims numbers on Thursday.

The other key catalyst for the DXY index will be the service and non-manufacturing PMI data. The numbers are expected to show that the services sector did well in September. The US will also publish the latest trade numbers on Tuesday.

At the same time, the US dollar index will react to statements by several Federal Reserve speakers like Raphael Bostic and John Williams. Last week, most Fed speakers hinted that the bank will start to slow its asset purchases soon.

US dollar index forecast

The four-hour chart shows that the US dollar index (DXY) has been in a strong bullish trend in the past few weeks. It has risen by more than 2.2% from its lowest level in September. Last week, it managed to move above the key resistance at $93.27, which was the highest level in August. It has now retreated and is about to retest this support. This is known as a break and retest pattern. Therefore, there is a likelihood that it will retest the support and resume the bullish trend.

The dollar currency index 4-hour chart, with 14-period RSI reading at 53.44


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