DXY: Is the US dollar index a good buy in July 2021?

The US dollar index (DXY) rallied in June as investors reacted to the relatively hawkish Fed interest rate decision and relatively strong American economic data. The index rose by almost 3% in June, making it its best month since March this year.

US dollar impresses

The US dollar rose against most currencies in June as investors focused on the relatively strong economic data from the US. The numbers showed that the country’s headline consumer price index (CPI) rose by 4.2% in May while the producer price index (PPI) rose by 6.2%. 

Further data revealed that the labour market continued tightening in May while the services and manufacturing PMI data kept rising. 

The icing on the cake for the DXY was the hawkish Federal Reserve interest rate decision. In this decision, the bank left interest rates unchanged between 0% and 0.25% and quantitative easing (QE) intact. The bank also hinted that it will start hiking rates in 2023, earlier than the previous estimate of 2024.

In July, the dollar index will react to several economic data and the FOMC decision scheduled for 28th. The first important data will come out on Friday when the Bureau of Labour Statistics (BLS) will publish the latest US jobs data. Analysts expect the numbers to show that the economy added more than 700k jobs in June while the unemployment rate fell to 5.7%.

On Wednesday, data by ADP showed that the economy added 685k jobs in June. Still, the ADP and BLS numbers tend to deviate. On Thursday, data by the BLS showed that the number of Americans filing for initial jobless claims declined to 364,000. Further data by Challenger showed that the number of job cuts declined from 24k to 20k.

The dollar index will also react to interest rate decisions by the European Central Bank (ECB), Bank of Japan (BOJ), and the Bank of Canada (BOC).

US dollar index forecast

The four-hour chart shows that the DXY index has been in a bullish trend recently. It has managed to move to the highest level in April. Along the way, it has formed what seems like a cup and handle pattern, which is usually a bullish sign. The index has also moved above the 25-day and 50-day moving averages. Therefore, the pair will likely keep rising in July as bulls target the next key resistance at $93.5.