DXY: US dollar index prediction for December 2021

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 Dec 1, 2021
  • The US dollar index had a relatively successful month in November.
  • This rally happened as the US published strong data.
  • A break and retest pattern could see it retreat in December.

The US dollar index (DXY) had a relatively successful November. Its price jumped by more than 2% and pushed it to the highest level since July last year. The price rose by more than 8.5% from its lowest level this year. 

Why the DXY rose

There are several reasons why the US dollar index jumped in November. First, the US published spectacular numbers during the month. In the first week, employment numbers showed that the country’s unemployment rate declined to 4.6% in October. This happened as the economy added more than 540k jobs during the month.

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Second, the US released strong inflation data. According to the statistics agency, the headline consumer price index (CPI) rose to a multi-year high of 6.2% in October. This figure was the highest it has been in the past three decades. It was also significantly higher than the Federal Reserve estimate of 2.0%.

Third, the DXY index jumped because of the positive retail sales numbers. Data showed that consumers were unfazed by the rising consumer prices. As such, they pushed their spending to a multi-month high. This was notable since consumer spending is the biggest part of the American economy. 

The US also published strong numbers in November. These include numbers on housing and manufacturing production. 

As such, the dollar index rose as investors prepared for a more hawkish Federal Reserve. This view was confirmed on Tuesday when the Fed chair hinted that the bank will unwind its quantitative easing policy at a faster pace than expected.

In December, the key movers of the DXY will be the Fed interest rate decision that will happen on December 15th. In addition to this, the index will react to the latest US inflation, retail sales, and non-farm payrolls numbers.

US dollar index forecast

Dollar Index

The daily chart shows that the US dollar moved above the key resistance level at $93.51 in November. This was a notable level since it was the highest level in March this year. It also formed the neckline of the inverted head and shoulders pattern. 

The index also remained comfortably above the 25-day and 50-day moving averages. Therefore, I suspect that the DXY will retreat in December and retest the support at $93.51. This is known as a break and retest pattern. It will then resume the bullish trend later during the month.

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