Dollar index (DXY) forecast ahead of US GDP, NFP, PCE data

The US dollar index (DXY) index pulled back slightly this week after the relatively weak economic data ameliorated the hawkish statement by Jerome Powell, the Federal Reserve chair. The index dropped to a low of $103.36 on Wednesday, down from this month’s high of $104.42. It has risen by more than 4% from the lowest level in July.

US consumer confidence data

The US dollar index retreated slightly after the relatively weak economic numbers from the United States. Data by the Conference Board showed that the country’s consumer confidence dropped from 117 in June to 106 in July. 

It was the first time in three months that consumer confidence in the country dropped. The report cited the rising worries about the American economy and the rising gasoline prices.

Consumer confidence is a closely watched figure because of the important role that consumer spending plays in the United States. Highly confident consumers lead to higher spending.

The US dollar index also retreated after the latest JOLTs jobs report by the Bureau of Labor Statistics (BLS). The report revealed that the number of vacancies in the country dropped to the lowest level in more than 2 years.  As such, there are worries that the labor market is softening.

Looking ahead, ADP will publish the latest US private payrolls data on Friday. Economists polled by Reuters expect the data to show that the country added 195k jobs in August after adding over 324k in the previous month.

The most important data this week will be the non-farm payrolls (NFP) and PCE inflation numbers. Economists see the NFP data softening to ~180k in August and the unemployment rate remaining at 3.7%.

Further, the US will release the latest GDP data on Wednesday. These numbers are expected to show that the economic growth accelerated in Q2. In a recent report, Atlanta Fed estimated that the economy will grow by 6% in Q3.

These numbers will come a few days after the Fed Chair addressed economists at the Jackson Hole Symposium. In his speech, he reiterated that the bank will continue hiking interest rates as inflation remains stubbornly high. Analysts believe that the bank will deliver one more hike this year and then start slashing them in 2024.

US dollar index forecast

The US dollar index has been in a strong bullish trend in the past few weeks. In this period, it has formed an ascending channel that connects the lowest and highest points since July 20th. The index retested the lower side of this channel on Tuesday.

It has now moved below the 25-period and 5-period moving averages and is sitting at the first support of the Woodie pivot points. Therefore, the outlook for the DXY index is neutral for now.

A break below the lower side of the channel at $103.40 will open the possibility of it falling to the support at $103. The alternative scenario is where it rebounds and retests the initial resistance at $104 (pivot point).