DXY: Here’s why the US dollar index is in a relentless sell-off

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 May 10, 2021
  • The US dollar index crashed to the lowest level since February this year after the weak NFPs.
  • The dollar has dropped against most developed-world currencies like sterling.
  • The path of least resistance is lower but this could change on Wednesday.

The relentless sell-off of the US dollar index (DXY) accelerated on Monday as the market continued to focus on the disappointing US jobs numbers. The index has declined for the past three consecutive days and is trading at the lowest level since February 25.

DXY price action

US dollar index under pressure

The US dollar has declined against most currencies. It has fallen by 0.12% against the Swiss franc and Canadian dollar and by more than 1% against the British pound. 

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This decline is happening following the relatively weak US non-farm payrolls (NFP) data that were published on Friday last week. The data revealed that the US economy added just 266,000 jobs in April this year. This decline was lower than the 978,000 that analysts polled by Reuters were expecting. The Bureau of Labour Statistics (BLS) also adjusted downwards the jobs that were created in March to 770,000.

These numbers show that the American economy is not recovering as fast as analysts were expecting. However, some analysts believe that the labour market is weak because of the enhanced unemployment insurance benefits given by Joe Biden’s administration.

Looking ahead, the dollar index will react to the latest inflation numbers scheduled for Wednesday. Analysts expect that consumer prices jumped by more than 3% in April, fueled by the higher crude oil prices and the $1.9 trillion stimulus package that was passed in March this year.

Flash data suggest that consumer prices have surged. For example, lumber prices have quadrupled in the past 12 months, raising house prices. Similarly, other commodities like iron ore and copper are trading at their all-time highs. Crude oil and natural gas prices have also surged to the highest level in more than 12 months.

Therefore, the Fed will be in a fix if consumer prices surge at a time when the unemployment rate is rising. A higher than expected CPI will be good for the DXY.

DXY technical forecast

Dollar index
Dollar index chart

The four-hour chart shows that the US dollar index has been in a sharp downward trend. The index has moved below the 15-day and 25-day exponential moving averages (EMA). Similarly, the price is below the Ichimoku cloud and the envelopes indicator while oscillators like the Relative Strength Index (RSI) and MACD have continued to drop. 

Therefore, the path of least resistance for the DXY is lower ahead of the US CPI data. However, there is a likelihood that bulls will push the price relatively higher if inflation surges.

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