DXY: Dollar index forecast ahead of US inflation data

on Mar 10, 2022
  • The US dollar index strong rally has retreated recently.
  • The retreat coincided with the strong performance of stocks.
  • Focus is on the upcoming US inflation data.

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The US dollar index (DXY) retreated sharply on Wednesday and Thursday morning as volatility retreated and as investors waited for the upcoming American inflation data. It is trading at $98.18, which is about 1.30% below the highest level this week.

US inflation data ahead

The US declined sharply after it recorded significant gains in the past few days. The decline coincided with a sharp reversal of what has been happening in the market lately. 

For example, after days of sell-off, American stocks had their best day in months. Crude oil prices dropped sharply although they remain at a multi-year high. The closely watched CBOE volatility index also plunged.

The next key catalyst for the DXY index will be the upcoming US consumer inflation data that will come out on Thursday.

Economists expect a big number. The median estimate is that the headline inflation rose from 7.5% in January to 7.9% in February. If they are accurate, it will be the highest inflation figure in the US in more than four decades.

The core consumer inflation, which excludes the volatile food and energy products, is expected to have declined slightly in February.

Still, there are concerns that the US is moving towards hyperinflation. For one, the Federal Reserve has been printing money at a pace of $120 billion per month. At the same time, the prices of most items have been in an upward trend in the past few weeks. 

Wheat, which is an important soft commodity, has risen to an all-time high. This means that the prices of key food items will keep rising. Similarly, other soft commodities like soybeans and corn have also been in a bullish trend.

Therefore, today’s inflation numbers will have some impact on the upcoming interest rate decision by the European Central Bank and the Fed.

US dollar index forecast

Dollar index

The daily chart shows that the DXY index has been in a strong bullish trend in the past few months. It has risen by over 10% from the lowest point in 2021. As a result, the index remains above the 25-day and 50-day moving averages.

It has also moved slightly below the upper side of the ascending channel shown in blue. Therefore, there is a likelihood that the pullback will continue today although the overall bullish trend remains. The next key level to watch will be at $97.