US dollar index (DXY) prediction ahead of US retail sales data

on Feb 16, 2022
  • The US dollar index declined slightly after positive developments in Russia.
  • Russia decided to pull some troops from its Ukrainian border.
  • Focus shifts to the upcoming US retail sales data.

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The US dollar index (DXY) retreated slightly in the overnight session as investors embraced a risk-on sentiment. It is trading at $96, which is about 0.45% below the highest level this week ahead of the upcoming retail sales data.

US retail sales data

The DXY index has been in a strong bullish trend in the past few days as demand for safe-havens rose. That happened as investors remained concerned about the crisis in Ukraine. On Tuesday, Russia signaled restraint when it announced that some troops would return to their home bases.

The announcement by the Russian Defense Ministry happened as Vladimir Putin held a meeting with German Chancellor, Olaf Scholz. 

Still, in a statement, Joe Biden warned that it was still possible that Russia will invade Ukraine in the coming weeks. Besides, it has more than 100k military officials near the Ukrainian border.

The next key catalyst for the US dollar index will be the latest American retail sales numbers that will come out on Wednesday. 

Data compiled by Investing shows that analysts are optimistic about the performance of the retail sector in January. Precisely, they expect that sales jumped by 2% after slipping by 1.9% in the previous month even as inflation rose. Excluding the volatile food and energy products, analysts expect that retail sales rose 0.8% in January after slipping by 2.3% in the previous month.

Retail sales are an important part of the economy because of two main reasons. First, the retail sector is one of the biggest employers in the US.  Second, they are good indicators of consumer spending, which is the biggest constituent of the GDP.

Strong retail sales numbers will give the Fed another reason to embrace higher interest rates. The bank has signalled that it will deliver at least three hikes this year.

US dollar index forecast

dollar index

The four-hour chart shows that the DXY index declined slightly in the overnight session. It is trading at $96, which is slightly below this week’s high. It is a few points above the 25-day and 50-day moving averages.Further, the price is slightly above the key support at $95.85, where it struggled to move below in December. Oscillators like the MACD and the Relative Strength Index (RSI) have all tilted lower. Therefore, the pair will likely keep falling as bears target the next key support level at $95.50.

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