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DXY index: US dollar outlook ahead of NFP data

By:
on Nov 30, 2022
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  • The US dollar index pulled back in November as the rally waned.
  • Data from the US showed that inflation eased in October.
  • FOMC minutes showed that most officials favored easing rate hikes.

The US dollar index had a tough performance in November as its remarkable rally stalled. The DXY dropped to a monthly low of $105.41, which was the lowest level since August. At its lowest point, the index was down by over 7.17% below the highest level this year.

US NFP data ahead

The DXY index retreated in November as hopes of a Fed pivot intensified. These hopes happened after the US published encouraging inflation data. According to the Bureau of Labor Statistics, the headline consumer price index declined from 8.3% in September to 7.7% in October. 

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Core CPI, which excludes food and energy prices, declined from 6.6% to 6.3%, as you will find in this article. There are more signs that inflation dropped in November since the average gasoline prices dropped to $3.3. Also, many retailers offered substantial discounts in a bid to clear their inventories.

The possibility of Fed pivoting was confirmed after the bank published minutes of its past meeting. Most officials were supportive of slowing the pace of rate hikes in the coming meetings. Therefore, analysts expect that the bank will hike rates by 0.50% in December after hiking by 0.75% in the past four straight meetings.

Therefore, the US dollar index will react to the upcoming non-farm payrolls (NFP) scheduled for Friday. Economists expect the data to show that the economy added over 200k jobs in November while the unemployment rate improved from 3.7% to 3.6%. The Fed will focus on the headline figures and those on wages.

Before that, the DXY index will react mildly to the jobs estimates by ADP and job opening numbers by the BLS. The other important numbers scheduled for Wednesday are the latest GDP and pending home sales numbers.

DXY index forecast

DXY index

The four-hour chart shows that the US dollar index has been in a tight range in the past few days. It has been hovering between $105.37 and $108. The index dropped below the important resistance level at $109.53, which was the lowest level on October 23. Meanwhile, oscillators like the Relative Strength Index (RSI) and the MACD have formed a bullish divergence pattern. It has also formed a double-bottom pattern.

Therefore, the index will likely have a bullish breakout as buyers target the key resistance at $109.53. A drop below the support at $105.40 will invalidate the bullish view.