US dollar index (DXY): temporary pullback, CPI, FOMC minutes ahead

The US dollar index (DXY) retreated for three straight days as investors focused on the latest American non-farm payrolls (NFP) data. After peaking at $107.31 on Tuesday, the index fell to a low of $105.93.

US inflation and FOMC minutes ahead

The US dollar index was in the spotlight this week as traders watched the intrigues in Congress and the latest economic data. Congress passed a bill to prevent a government shutdown in the next 45 days, leading to the ouster of Kevin McCarthy, the speaker.

These intrigues, together with increased partisanship, mean that the US will likely have a government shutdown in November. 

The other important news came out on Wednesday when ADP published its private payrolls data. The report showed that the private sector created just 89k jobs in September, the smallest increase in months. It also led to a small reprieve in the bond market.

The last important data was the official US non-farm payrolls data. According to the Bureau of Labor Statistics (BLS), the economy added over 320k jobs in September, a big increase from the previous 220k. The report was much higher than the median estimate of 160k.

There were some negative parts in the report. The unemployment rate rose to 3.8% while wage growth retreated. The average hourly earnings rose by 4.2%, lower than the previous 4.3%.

Looking ahead, the Federal Reserve will publish minutes of its past meeting on Wednesday, These minutes will provide more information about what to expect in the coming meetings.

The most important USD news will be the upcoming US inflation data scheduled for Thursday. Economists expect the data to show that the headline and core inflation rose slightly in September as gasoline prices jumped.

Fortunately, crude oil prices have pulled back modestly in the past few days, with Brent trading at $84.

US dollar index forecast

The daily chart shows that the DXY index has been in a strong bullish trend in the past few months. It recently crossed the important resistance levels at $104.80 and $105.93, the highest swings on May 31st and March 8th. The dollar remains above the 50-day and 100-day moving averages.

Most importantly, the index has formed a break and retest pattern by moving to $105.93. In price action analysis, this is usually a sign of a bullish continuation. Therefore, the index will likely resume its uptrend in the next few weeks. If this happens, the next level to watch will be $110.