DXY: Dollar index forecast as US bond yields spikes

The US dollar index (DXY) popped to the highest level since November 2020 as Treasury yields rose and after the relatively weak consumer confidence numbers. The index rose to a high of $93.80, which is about 2% above the lowest level in September.

US consumer confidence fades

Data published by the Conference Board showed that the US consumer confidence declined to 109.3 in September from 115 in the previous month. This decline was significantly lower than the median estimate of 114.5 and was the lowest level in seven months. 

The decline in confidence was mostly because of the rising cost of products and the rising number of Covid-19 infections. Consumer confidence is an important number because of the fact that consumer spending is the biggest component of the country’s economy.

Meanwhile, the US dollar index also rose because of the rising bond yields. The 10-year yield rose to 1.55%, the highest level in more than three months. The increase was mostly because of the recent hawkish Federal Reserve decision. The Fed expects to start tapering its asset purchases in the next few months. It will also start hiking rates in 2022.

In a statement on Tuesday, Jerome Powell warned that inflation could remain stubbornly above its target of 2% for a while.

The DXY index also rose because of the rising probability of a default of the US government debt. On Monday, Republicans in the Senate blocked a bill brought by the Democrats to fund the government and extend the debt ceiling. 

With the deadline nearing, there is a possibility that the US government will see a shutdown. At the extreme level, the Treasury Department will start defaulting on the country’s bonds. Another reason why the index is rising is the ongoing energy crisis in Europe and China.

US dollar index forecast

The US dollar index rose sharply as risks rose. As it rose, the index managed to move above the key resistance level at $93.72, which was the highest level since August 20th. The index also managed to rise above the 25-day and 50-day moving averages (MA). At the same time, the MACD indicator rose while the Relative Strength Index moved to the overbought level.

Therefore, the index will likely keep rising as bulls target the next key resistance level at $95. On the flip side, a move below the support level at $93.50 will invalidate the bullish view.