DXY forecast: US dollar index is not out of the woods yet

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Oct 21, 2021
  • The US dollar index stabilised on Thursday.
  • This happened after the US released strong initial jobless claims data.
  • The US also published strong existing home sales numbers.

The US dollar index (DXY) was in a tight range on Thursday as investors reflected on the relatively strong US initial jobless claims and existing home sales data. The index is trading at $93.65, which is slightly above this week’s low of $93.48.

Jobless claims and existing home sales

The biggest catalyst for the US dollar index on Thursday was the latest initial jobless claims numbers. According to the Bureau of Labor Statistics (BLS), initial jobless claims declined to a post-pandemic low of 290k last week. This was a better performance than the previous week’s increase of 296k. It was also better than the median estimate of 300k. 

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Further data showed that continuing claims fell from 2.6 million to 2.48 million last week. Analysts were expecting a modest decrease of 2.55 million. At the height of the pandemic, the US had more than 20 million people filing for jobless claims. 

These numbers, coupled by the fact that the unemployment rate has declined to 4.8% are signals that the labour market is tightening. Also, recent data showed that the United States had more than 10 million vacancies. 

Therefore, there is a possibility that the Federal Reserve will start its tightening cycle earlier than expected. Besides, consumer prices are significantly above its target of 2.0%. These prices are expected to keep rising as supply chain challenges remain.

The US dollar index also rose after the strong housing data. According to the National Association of Realtors, existing-home sales rose to more than 6.29 million in September. This was a better performance than the previous 5.88 million and the expected 6.09 million. Therefore, the housing sector is tightening and prices are soaring, which is another reason why the Fed could normalise sooner.

US dollar index forecast

Dollar index

The four-hour chart shows that the DXY index has been in a strong sell-off lately. It has dropped by almost 1% from its highest level this month. The price has also moved below the 25-day and 50-day moving averages. It is also slightly above the 38.2% Fibonacci retracement level.

Therefore, the path of the least resistance for the dollar index is to the downside, with the next key support level being at the 50% retracement at $93.22.

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