DXY: US dollar index forecast ahead of Biden’s Fed chair decision

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 Nov 22, 2021
  • The US dollar index has been in a major bullish trend.
  • This performance is because of the strong US economic data.
  • Focus shifts to Biden’s decision between Powell and Lael Brainard.

The US dollar index (DXY) is hovering near its highest level since July 2020 as investors react to the latest economic data from the United States. The index is trading at $96.13, which is about 8% above the lowest level this year.

Strong US data

The DXY index has jumped in the past few weeks after the US published strong inflation, employment, and retail sales numbers. These numbers have reinforced the view that the Federal Reserve will maintain its hawkish stance in the coming months.

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Data from the US showed that the US labour market is tightening even as the great resignation continues. The economy has more than 10 million vacancies while the unemployment rate has dropped to about 4.6%. Analysts expect that the economy continued adding hundreds of thousands of more jobs in November.

Inflation, which is a measure closely followed by the Federal Reserve, has jumped to the highest level in more than 30 years while retail sales have risen. Retail sales are an important part of the economy since are a measure of consumer confidence.

The US dollar index will react to several things this week. The most important one will be Joe Biden’s decision on the next Fed chair. 

Many analysts believe that he will reappoint Jerome Powell in a bid for continuity. As you recall, Donald Trump was the first president in a long time to replace the Fed chair before her second time. The alternative to Jerome Powell will be Lael Brainard, a member of the Fed. 

The DXY index will also react to a number of important economic data from the United States. For example, on Monday, the US will release the latest existing-home price index data. Later this week, it will release new home sales data, durable goods orders, and Q3 GDP data.

US dollar index forecast

US dollar index

The daily chart shows that the DXY index has been in a strong bullish trend in the past few weeks. This price action was supercharged a few weeks ago when the pair rose above $93.42. It was the neckline of the inverted head and shoulders pattern.

The index has also risen to the 50% Fibonacci retracement level. It has also risen above the 25-day and 50-day moving averages.

Therefore, the US dollar index will continue the bullish trend as investors target the 61.8% Fibonacci retracement level at $97.85.

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