DXY: US dollar index rise to $94 likely as it forms inverted H&S pattern

The US dollar index (DXY) rose to the highest level since November last year as forex investors reacted to the latest economic numbers from the United States. It rose to $92.67, which is 4% above the year-to-date low of $89.20.

US GDP data

The US Bureau of Labour Statistics published the latest GDP numbers on Thursday. The numbers revealed that the American economy expanded by 4.3% in the fourth quarter. This was a better reading than the previous estimate of 4.1%. 

This economic growth was mostly because of the 2.3% growth of consumer spending and the substantial government spending. Analysts at most forex brokers believe that the economy will keep rising this year because of the recent $2.8 trillion worth of stimulus and the fast pace of coronavirus vaccination. 

The economy will also be supercharged if the Joe Biden administration manages to pass its approximated $3 trillion infrastructure package. The goal is to rebuild the country’s roads and bridges and other major infrastructure projects.

Meanwhile, the dollar index also reacted to the relatively positive initial jobless claims numbers. In total, the initial claims declined from 781,000 to 684,000. This was a better estimate than the estimated 730,000. In the same period, the continuing jobless claims dropped from more than 4.1 million to 3.8 million. 

The dollar index is also rising as the market continues to focus on the bond market. The 10-year yield declined to 1.60% after rising to 1.74% on Friday. The 2-year also declined to 0.14% after the strong jobless claims numbers. Further, the relatively dovish statement by Jerome Powell also helped.

The US dollar rose by 0.40% against the Swedish krona and Japanese yen and by 0.30% by 0.20% against the Swiss franc.

US dollar index forecast

The US dollar index rose sharply today, continuing the gains that started on February 25. It has formed an inverted head and shoulders pattern and moved above the 25-day and 50-day exponential moving averages (EMA). The Relative Strength Index (RSI) and other oscillators have also rallied. Therefore, the index may keep rising as bulls target the next key resistance at $94.