DXY: US dollar index forms H&S pattern after dovish Powell speech

The US dollar index (DXY) declined sharply after the relatively dovish statement by Jerome Powell at the virtual Jackson Hole Symposium. The index declined to $92.60, which was the lowest level since August 17. This price was also about 1.20% below the highest point in August.

The Federal Reserve

The DXY index declined on Friday after Jerome Powell signalled that the Fed will slow down its giant $120 billion per month asset purchase program. His statement was in line with what other Fed officials like Raphael Bostic and Esther George said in the past few weeks. It was also in line with what the recent FOMC minutes said.

The speech set a relatively new tone for the Fed chair, who is eying to keep his job in February next year. Some key Biden advisors are keen to have him keep the job. Still, some progressives, who are crucial to the vote, are opposing his reappointment. 

Powell signalled that the tapering of asset purchases will end later this year so long as the American economy remains steady. Recent economic numbers have sent signs that the economy is doing well. 

For example, data published last week showed that the country’s existing and new home sales numbers rose in July. That was further evidence that the country’s housing market remains steady. On Monday, the US is expected to publish relatively strong pending home sales data.

Looking ahead, this will be an important week for the US dollar index. As the month comes to an end, the key data to watch will be the non-farm payroll (NFP) data that will come out on Friday. Analysts expect that the labour market held steady as companies struggled to find workers. The index will also react to the manufacturing PMIs and Eurozone inflation data.

US dollar index forecast

The three-hour chart shows that the DXY index has been under intense pressure lately. Along the way, it has formed a head and shoulders pattern, which is a bearish signal. It has also moved below the short and relatively longer-term moving averages. 

The price is also slightly above the neckline of the H&S pattern while the Relative Strength Index (RSI) is slightly above the oversold level. Therefore, the dollar index will likely maintain the bearish trend as bears target the key support level at $92.00.