DXY: US dollar index forecast ahead of FOMC and NFP data

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 31, 2021
  • The US dollar index bounced back on Friday.
  • The jump happened after the strong US PCE data.
  • The focus will be on the latest US NFP data and Fed decision.

The US dollar index (DXY) rebounded sharply on Friday after the latest US inflation and personal consumption data. The pair rose to a high of $94.30, which was the highest it has been since October 13. It was also about 1.10% above the lowest level on Friday.

Fed decision and NFP in focus

Data published on Friday showed that the American personal consumption index (PCE) jumped to 4.4% in September. This was the highest it has been since 1991. The PCE is an important number since it is the Federal Reserve’s favourite inflation gauge.

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At the same time, data showed that personal consumption continued to improve as consumers spent their savings. The data came a day after the relatively disappointing US GDP data. The numbers revealed that the country’s economy rose by just 2.0% in the third quarter, a sharp decline from the previous 5.7%.

The DXY index will be in focus this week because of two main reasons. First, the Federal Reserve will start its two-day meeting on Tuesday and then publish its report on Wednesday.

Analysts expect that the central bank will turn relatively hawkish in this meeting. Besides, the country’s inflation has jumped sharply while the unemployment rate is falling.

Precisely, the bank is expected to start cutting its quantitative easing program by about $15 billion per month. It will aim to end the purchases by June next year. At the same time, the bank will bring forward its interest rate hike expectations.

The US dollar index will also be in focus ahead of the latest non-farm payrolls (NFP) data that will come out on Friday. The data is expected to show that the labour market continued tightening in October while the unemployment rate declined. Wages are also expected to rebound as companies continued to battle for talent.

US dollar index forecast

Dollar index

The four-hour chart shows that the DXY index declined below the key support level at $93.50 last week. The index had struggled moving below this level several times in October. It then rebounded after the strong inflation data.

At the same time, it moved above the 25-day and 50-day moving averages and is approaching the key resistance at $94.55.

Therefore, the DXY index will likely keep rising as bulls target the resistance at $94.55. This was the highest level in both September and October.

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