DXY: US dollar index holds steady ahead of US inflation data

The US dollar index (DXY) held steady as investors reflected on the stellar non-farm payrolls numbers and the upcoming US inflation data. The index remained at $92.80, which was the highest level since July 26. 

US dollar index forecast

The US dollar index is holding steady as US bond yields rise. The 10-year bond yield rose for the fifth straight day to 1.29% as the market reflected on the blemish-free non-farm payrolls data. The numbers showed that the American economy created more than 943k jobs in July as the economy continued to recover. The unemployment rate declined to 5.3% while wages rose by 4.0%. All these metrics were better than the median estimates.

The next key catalyst for the DXY will be the upcoming US inflation numbers that will come out on Wednesday. Economists expect the numbers will show that the headline prices rose by 5.3% in August after rising by 5.4% in the previous month. 

They also expect that the core prices that strips food and energy, rose by more than 4% for the second consecutive month. A stronger inflation number is good for the dollar index because it increases the possibility that the Federal Reserve will tighten its policies earlier than expected.

Meanwhile, the US dollar index is holding steady as investors follow the infrastructure package closely. The Senate passed a procedural motion during the weekend. Therefore, there is a possibility that the bill will be passed later this week. Still, the impact of this package to the economy will be relatively muted since it will be implemented in a ten year period. Further, only half of these funds is new, with the rest coming from repurposed funds. 

The DXY will also react to the latest UK GDP numbers that will come out on Thursday. These numbers are notable since sterling forms a major part of the index.

DXY technical analysis

The 4H chart shows that the DXY index broke out below the ascending channel last week. It then declined to a low of $91.83, which was along the 38.2% Fibonacci retracement level. It then bounced back to $92.90 after the strong non-farm payroll numbers. It also rose above the 25-day and 50-day moving averages while the Stochastic oscillator moved to the overbought level of 75. Therefore, the index will likely maintain the bullish momentum as investors target the next key resistance at $93.20.