Dollar index (DXY) forecast ahead of US GDP and PCE data

The US dollar index (DXY) pullback gained steam on Tuesday as the risk-on sentiment resumed. The index also declined even after the relatively strong US housing data. It is trading at $92.95, which is slightly below last week’s high of $93.46.

DXY retreats

The DXY index has retreated as the overall fear of the Covid pandemic waned. This happened after the FDA gave a full authorization of the vaccine developed by Pfizer and BioNTech. 

The risk-on approach is evidenced by the overall performance of US equities, which rose to an all-time high. In particular, energy stocks like Exxon Mobil and Chevron jumped as crude oil price rallied. Similarly, aviation companies like Delta, United Airlines, and Southwest rallied. Hospitality brands like Hilton and Airbnb shares also rallied.

The US dollar index also declined after the strong US housing data. Numbers published on Monday showed that existing home sales increased to more than 5.99 million from the previous 5.87 million. And on Tuesday, the numbers showed that the US new home sales data rose to more than 708k. Last week, data revealed that housing starts and building permits were also strong.

The coming three days will be important for the DXY index. On Wednesday, the US will publish the latest durable goods orders. These numbers will show whether the manufacturing sector remained strong in July. On Thursday, the US will release the second reading of the second-quarter GDP numbers. In most cases, the second revision has minimal impact on the US dollar.

Finally, on Friday, the US will publish the personal consumption index (PCE), which is the Federal Reserve’s favourite inflation data. Meanwhile, the index will react to this year’s Jackson Hole summit that will happen virtually for the first time. 

US dollar index forecast

Turning to the daily chart, we see that the DXY rose to a key resistance level at $93.46 last week. This was an important level since it was the highest level since April. Therefore, the current pullback is mostly because of profit-taking after the price rose to a key level of resistance.Meanwhile, the index remains above the 20-day and 50-day volume-weighted moving average (VWMA) while the Stochastic oscillator moved to the overbought level. Therefore, the index will likely break out higher in the near term as investors target the key resistance at $94.50.