US dollar index (DXY) forms golden cross, inverted H&S patterns

By:
on Sep 7, 2023
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  • The US dollar index continued rising this week.
  • It has formed a golden cross pattern on the daily chart.
  • The index has also formed an inverted head and shoulders pattern.

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The US dollar index (DXY) continued surging this week as demand for the greenback remained at an elevated level. It jumped to a high of $104.77, the highest level in more than five months. It has soared by more than 4% from its lowest level this year.

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US dollar as a safe haven

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The DXY index has been a bright spot in the financial market this week. This rally happened as investors assessed the strength of the American economy and the rising crude oil prices.

Brent, the international benchmark, has jumped to $90 while the West Texas Intermediate (WTI) has risen to $87. The implication of this is that the American inflation will remain above 2% for longer than expected.

Therefore, there is a likelihood that the Federal Reserve will either deliver another rate hike in September or leave them higher for longer. 

The most recent data shows that the American economy is slowing. For example, the GDP numbers revealed that the economy expanded by 2.1% in Q2, down from the previous estimate of 2.4%.

The non-farm payrolls (NFP) data revealed that the economy added just 184k jobs in August while the unemployment rate rose to 3.8%. Consumer confidence dropped in August.

Further, the Beige report by the Fed showed that wage growth in most Fed regions was slowing. Therefore, while the US is slowing, I believe that the economy is holding better than other countries, especially in Europe.

The US dollar index is also rising because of the rising yields in the US. The closely watched risk-free rate or the ten-year yield has risen to over 4%. Therefore, many foreign investors have moved their funds to US assets like money market funds.

The next important catalyst for the DXY index will be the upcoming statements by some Fed officials like Goolsbee and Michele Bowman.

US dollar index forecast

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US dollar index

The daily chart shows that the DXY index has been in a strong bullish trend in the past few weeks. It has now flipped the important resistance at $104.64 into a support. The index has also risen above the short and longer-term moving averages. 

The 200-day and 50-day exponential moving averages (EMA) is almost forming a golden cross pattern. It has formed an inverted head and shoulders pattern.

Therefore, the index will likely continue rising in the coming days as investors targeted the key resistance at $105.96, the highest point on March 8th.

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