DXY: US dollar index forecast for August 2021

The US dollar index (DXY) erased all gains made in July last week. The index started the month at $92.38 and then rose to a high of $93.20. It then ended the month at $92, which was 1.20% below the monthly high. 

US dollar index forecast

The dollar index is hovering near the lowest level since July 6 as investors reflect on the Covid situation in the US. Data compiled by the CDC shows that the number of infections in the US has risen substantially in the past few weeks.

The seven-day moving average of new infections has jumped to more than 66,000, which is substantially higher than in the previous weeks. And the situation will get worse as the vaccination rate falls. At the same time, the number of breakthrough cases in the US has risen substantially in the past few days.

It is against this backdrop that the Federal Open Market Committee (FOMC) decided to leave interest rates unchanged and sound dovish last week. The bank said that it was not considering hiking interest rates any time soon. Also, data published on Thursday showed that the US Q2 GDP rose at a slower pace than expected.

Looking ahead, the US dollar indeed will react to the latest non-farm payrolls (NFP). The data is expected to show that the economy added more than 900k jobs in July as demand for workers rose. This will be a better number than June’s additions of more than 850k. At the same time, the unemployment rate is expected to decline from 5.9% to 5.7%.

The index will also react to the latest US manufacturing and services PMI numbers. The two numbers are expected to ease slightly from the previous month. Additionally, the DXY will react to the latest inflation expectations from the US.

DXY prediction

The daily chart shows that the dollar index rose to $93.20 in July. This was a notable level since it was close to the highest level on March. The index then retreated to $91.75. The index seems like it has formed a cup and handle pattern, which is usually a bullish signal. It has also moved slightly below the 25-day and 15-day moving averages. Therefore, the pair will likely break out higher above the resistance at $93.40 in July. If this happens, the next key level to watch will be $95.