DXY: US Dollar Index Forecast Ahead of US Jobs and NFP Data

Aug 30, 2021 05:25 PM ET
DXY: US Dollar Index Forecast Ahead of US Jobs and NFP Data

The US dollar index (DXY) is under intense pressure ahead of a busy week. The index is in a deep sell-off after the speech by Jerome Powell at the Jackson Hole Summit. At the same time, investors are watching Hurricane Ida and the upcoming data from the US and other key countries.

Jerome Powell on tapering

The main catalyst for the ongoing US dollar index sell-off is Jerome Powell’s speech on Friday at the virtual Jackson Hole summit. This speech was closely watched because the Federal Reserve did not have a monetary policy meeting scheduled in August. 

In the statement, Jerome Powell said that the American economy was still in a recovery mode as the country emerged from the Covid-19 pandemic. As a result, he said that the bank would start to talk about tapering in the coming meetings so long as the impact of the Delta variant on the economy remained muted. 

Other Fed officials have also sounded optimistic about the unwinding of these asset purchases. Some of the relatively hawkish members were Raphael Bostic, Esther George, and Mary Daly. The bank is currently buying assets at a pace of $120 billion per month. As a result, its balance sheet has risen to more than $8 trillion.

Recently, other central banks have started to unwind their purchases. For example, the Reserve Bank of New Zealand (RBNZ) has already ended its asset purchases. The bank was even considering hiking interest rates in the past meeting. The Bank of Canada has also slowed asset purchases three times before.

US economic data

The next key catalyst for the US dollar index will be the latest consumer confidence data from the Conference Board. This data will come out on Tuesday. Analysts expect that confidence among consumers dipped from 129.1 in July to 124 in August. 

This may be a significant dip because of the Delta variant, ongoing vaccine mandates, and the overall high cost of living. Recently, the Michigan consumer confidence data declined to the lowest level since the pandemic started.

The next key important number will be the latest American employment data that will come out on Friday. Analysts expect that the economy added more than 728k jobs in August after adding over 943k in the previous month. They also see the unemployment rate falling from 5.4% in July to 5.2% in August. Wages are also expected to remain steady as the labour market tightens.

Other key numbers to watch out for this week will be the US initial jobless claims data and the latest trade numbers. Elsewhere, the index will react to the August PMIs and Eurozone inflation data. 

Meanwhile, investors are watching Hurricane Ida, which made landfall during the weekend. The storm, which was the worst in 16 years, led to significant power disruptions and floods. Still, the impact of the storm on the American economy should be muted.

US dollar index forecast

The daily chart shows that the DXY index rose to a high of $93.70 last week. It then pulled back to the current level of $92.65. As a result, the index managed to move below the key resistance level at $93.42, which was the highest point on April 1.

DXY daily chart, showing key price levels, RSI and EMAs.

DXY is also slightly above the 25-day and 50-day Exponential Moving Averages (EMA), while the Relative Strength Index (RSI) has retreated to about 50. Therefore, the index will likely pull back and then bounce back higher.


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