DXY: US dollar index forms descending triangle ahead of NFP data

The US dollar index has moved sideways in the past few days as investors assess the next actions by the Federal Reserve. The DXY was trading at $103.05, where it has been stuck at ahead of the upcoming non-farm payrolls (NFT) data. This price is about 2.2% above the lowest level this year.

Federal Reserve hikes ahead

The US dollar index has moved sideways amid the ongoing convergence between the Fed and the European Central Bank. In June, the ECB decided to hike interest rates by 0.25% in a bid to fight the elevated inflation. 

It also pointed to more rate increases this year, as we wrote here. The actions by the ECB are important for the US dollar index since the euro has the biggest weight.

The Federal Reserve, on the other hand, delivered a hawkish pause. It left rates unchanged and then hinted that it will continue hiking in the coming months. 

The most recent economic numbers show that the American economy is strong. For example, data published in the past two weeks showed that housing starts, building permits, new home sales, and existing home sales jumped in May. 

House prices have done well this year, helped by lower inventories in the country. At the same time, the labor market is still tight while consumer confidence has continued rising. On Thursday, data revealed that the economy expanded by 2% in Q1, better than the previous estimates.

The next important USD news will come on Friday when the Bureau of Labor Statistics (BLS) publishes the non-farm payrolls (NFP) data. Together with inflation, the jobs report forms an important part of the Fed’s dual-purpose role.

Economists believe that the economy added over 225k jobs in June after creating 339k in the previous month. The jobs report has been better than estimates in the past few months. They expect that the unemployment rate remained at 3.7%.

A better-than-expected report will reinforce the case of a more hawkish Fed when it meets later this month.

US dollar index forecast

DXY chart by TradingView

The DXY index has moved sideways in the past few months. In this period, it has remained above the important support level at $100.84, the lowest level this year. It is also consolidating at the 25-day and 50-day moving averages.

The dollar index has formed a descending triangle pattern, which is usually a bearish sign. Therefore, the outlook of the US dollar index is neutral with a bearish bias. If a bearish breakout happens, the next level to watch will be at $100.84.

The post DXY: US dollar index forms descending triangle ahead of NFP data appeared first on Invezz.