DXY: US dollar index forecast for August 2021

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 2, 2021
  • The US dollar index erased the gains made in July this year.
  • The index is reacting to the latest US Covid outbreak.
  • We explain what to expect in August this month.

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.

Are you looking for fast-news, hot-tips and market analysis? Sign-up for the Invezz newsletter, today.

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

Dollar index

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.

Where to buy right now

To invest simply and easily, users need a low-fee broker with a track record of reliability. The following brokers are highly rated, recognised worldwide, and safe to use:

  1. Etoro, trusted by over 13m users worldwide. Register here >
  2. Capital.com, simple, easy to use and regulated. Register here >