US dollar index rises ahead of a key Jerome Powell speech

The US dollar index rose on Tuesday after the relatively weak US retail sales numbers. The index rose to $92.75, which was about 0.40% above the lowest level on Friday. 

US retail sales

The retail sector plays an important role in the American economy. It is one of the biggest employers in the US. At the same time, retail sales are an important gauge of consumer spending, which is the biggest constituent of the GDP.

The US retail sales underperformed in July even as prices remained elevated. According to the statistics agency, the headline retail sales declined by 1.1% in July after rising by 0.7% in the previous month. Still, the sales rose by 15.7% on a year-on-year basis because of last year’s low base.

Meanwhile, the core retail sales, which strips the volatile food and energy prices, fell by 0.4% in July after rising by 1.6% in June. 

These numbers came exactly a week after the US published the July consumer price index data. The numbers showed that the headline CPI rose by 5.4% in July, the highest level since 2003. Without food and gas, the prices rose by 4.2% in July. 

Americans have continued making big purchases. Many of them have bought houses to take advantage of low mortgage rates and the government. 

The US dollar index will next react to the latest US manufacturing and industrial production numbers scheduled for later today. Analysts expect the numbers to show that the two productions rose by 0.6% and 0.5%, respectively.

Still, the biggest catalyst for the DXY index will be a statement by the Federal Reserve chair, who will hold a town hall session. In it, he will likely talk about the period for tapering of asset purchases since some members have started suggestions about tapering.

US dollar index technical analysis

The four-hour chart shows that the DXY has formed a cup and handle pattern. In technical analysis, this is usually a sign of a bullish continuation. It is now at the side of the handle pattern. At the same time, the index has moved to the 25-day and 50-day moving averages. 

Therefore, the index will likely resume the bullish trend as bulls target the upper side of the cup pattern. Still, a bearish breakout cannot be ruled out considering that the index has formed a bearish flag pattern.