US dollar index (DXY) forecast: consumer confidence, FOMC, NFP data

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on Jan 31, 2023
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  • The US dollar index has been in a slow bullish trend in the past few days.
  • Conference Board will publish the latest American consumer confidence data.
  • The Fed will conclude its two-day meeting on Wednesday.

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The US dollar index (DXY) has crawled back this week ahead of the upcoming US consumer confidence data, FOMC decision, and non-farm payrolls (NFP) data. After falling to $101.58 last week, the index has risen to $102.47. It remains significantly lower than last year’s high of $115. 

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FOMC decision ahead

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The Federal Open Market Committee (FOMC) will conclude its two-day meeting on Wednesday evening. It will be a closely-watched event since it will set the tone for what to expect later this year. 

Also, is an important meeting because of the recent performance of the financial market, with the Dow Jones and Nasdaq 100 up by double-digits this year. Bond yields have rallied while the VIX index has fallen to about $20. Similarly, the fear and greed index has risen to the greed area of 67.

Economists expect that the Fed will continue with its hawkish tone in a bid to cool the market, as I wrote here. Most of them expect the bank to hike by 0.50% for the second straight meeting. It had previously increased rates by 0.75% for four meetings. Also, officials will point to further rate hikes in the coming months. In a statement, Kavan Choksi of KC Consulting said:

“The Fed has also shown a keen interest in the rising cost of services which could be pivotal in whether rate hikes continue. What may further indicate future hikes is last month’s Fed projections declaring a target range of 5-5.25 percent for borrowing costs. Hitting the target range would mean at minimum, an additional two rate hikes.”

The US dollar index will also react to the important forex news on American consumer confidence data scheduled for Tuesday and non-farm payrolls (NFP) numbers set for Friday. Expectations are that confidence continued rising in January as inflation cooled.

The labor numbers will be important because of the mass layoffs we saw in January. Companies like Microsoft, Goldman Sachs, and 3M all announced substantial layoffs during the month.

US dollar index forecast

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US dollar index

DXY chart by TradingView

The 4H chart shows that the DXY index crashed to a low of $101.58 in January, where it found substantial support. It has formed a descending channel that is shown in green and moved slightly below its upper side. The index has also risen above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) will likely retreat.

Therefore, with the index nearing the upper side of the channel, it will likely resume the bearish trend as investors sell the news if the Fed sounds hawkish.

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