DXY: US dollar index bounces back after strong durable goods orders

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Aug 26, 2020
  • The US dollar index rose today as investors reacted to the strong durable goods order numbers.
  • Durable goods orders rose by 11.2% to $230 billion while core durable goods orders rose by 2.4%.
  • The data came a day after the Census Bureau released strong new home sales data.

The US dollar index (DXY) spiked today as investors refocused on the ongoing Jackson Hole summit in Wyoming. The index is also reacting to a series of strong economic data from the United States. As of this writing, it is trading at $93.25, which is higher than the intraday low of $93.00.

US dollar index
US dollar index bounces back

US durable goods orders rise

The US dollar index is rising today partly because of the strong durable goods orders from the United States. According to the Census Bureau, new orders on durable goods rose by 11.2% to $230 billion in July. That was higher than the revised June’s orders of $207 billion. The data was higher than the 4.3% increase that analysts were expecting and was the biggest increase since May.

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The core durable goods, which exclude transportation, increased by 2.4%. Transportation equipment rose by $19.6 billion to $74.7 billion. Similarly, excluding defence, the orders rose by 9.9%.

Meanwhile, unfilled orders declined by $8.2 billion while inventories of manufactured goods fell by 0.5% to $422.6 billion.

These numbers seem to confirm that the US is going to have a V-shaped recovery. They came a day after data from the bureau showed that new home sales increased by 13.9% in July mostly because of low interest rates. Analysts were expecting the sales to increase by just 1.3%. Similarly, existing home sales in the US rose by nearly 25% in July.

Earlier today, data showed that mortgage applications dropped by 6.5% in the past week while the mortgage market index dropped from 824 to 770.

Other numbers like manufacturing and services PMIs, employment, and industrial production have been rising. However, consumer confidence dropped to the lowest level since 2014 in August.

The US dollar index is rising as central bank officials meet for their annual Jackson Hole summit in Wyoming. The headline segment will be Jerome Powell’s speech at the symposium tomorrow. According to Bloomberg, the chair is likely to call for more stimulus from Washington. He is also expected to commit to low interest rates until employment and inflation improve.

US dollar index technical outlook

US dollar index
US dollar index chart

The weekly chart shows that the US dollar index has been in a sharp downward trend after peaking at 102.96 in March. The pair reached a low of $92.20 on August 17. This level was slightly above the 23.6% Fibonacci retracement level. Also, it is below the 50-day and 100-day exponential moving averages. Most importantly, the index seems to have formed a morning star pattern. Therefore, I suspect that the index will continue rising as bulls aim for the next resistance at $94.0.

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