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The US dollar index (DXY) price continued its downward trend after the soft US non-farm payrolls (NFP) data. It dropped to $101.40, the lowest level since May 10th. In all, the greenback has dropped by more than 3% from the highest point in May.
US consumer inflation data ahead
The US dollar index has sold off after the mild jobs numbers. Data published by the Bureau of Labor Statistics (BLS) showed that the economy added over 209k jobs in June. The bureau also downgraded its estimates for the past two months.
The next important USD news will be the upcoming US consumer price index (CPI) data scheduled for Wednesday. Economists expect the data to show that the headline CPI dropped to 3.1% in June. If analysts are correct, it will be the lowest level figure since March 2021.
Core inflation is expected to move to 5.0% on a year-on-year basis. They also expect it to have risen by 0.3% from the previous month. This figure will be significantly higher than the Fed’s target of 2.0%.
Still, analysts expect the data to have no meaningful change in the Fed’s decision. In a statement this week, Cleveland Fed’s Loretta Mester said that the Fed needs to hike rates in the coming months since inflation remains sharply high. The same view was repeated by other Fed officials like Loretta Mester and Mary Daly. In a note, an economist at Oxford Economics said:
“While another rate hike in July will increase the likelihood of a recession, policymakers appear willing to make the trade-off. Their data-dependent approach means they will wait to be absolutely sure that inflation is on a firm and clear path to 2% before considering loosening policy.”
Therefore, there is a 90% chance that the Fed will hike interest rates by 0.25% in the upcoming meeting.
US dollar index forecast
In my last article on the US dollar, I noted that it had formed a descending triangle pattern. I predicted that the index would have a bearish breakout as sellers target the key support at $100.84. This view was accurate as the index has made a strong bearish breakout.
The DXY index has moved below the key support at $101.91, the lowest level on June 22nd. Oscillators like the MACD and the Relative Strength Index (RSI) have moved below the oversold level.
Therefore, while the overall outlook is bearish, I suspect that the index will bounce back as buyers attempt to retest the key resistance point at $101.91. In the longer term, however, the index will likely drop below $100.
The post US dollar index (DXY) analysis ahead of US CPI numbers appeared first on Invezz.
