DXY Index forecast ahead of the FOMC decision, US NFP and GDP data

The US Dollar Index  wavered on Wednesday morning as market participants waited for the key US macro data and the upcoming Federal Reserve interest rate decision. The DXY Index was trading at $98.80, up from the year-to-date low of $96.38. 

Federal Reserve decision and US macro data

The US dollar index will be in the spotlight today, July 30, as the US publishes key economic data and the Fed makes its interest rate decisions. 

The first key data to watch will be the second reading of the second quarter GDP report by the Bureau of Economic Analysis (BEA). Economists expect the report to show that the economy grew by 2.4% during the quarter, a major improvement after it contracted in 0.5% in Q1.

The economy contracted in the first quarter as companies went on an importing spree before the Liberation Day tariffs. This increased the US imports dramatically, tilting the calculation of the GDP.

ADP will also publish its closely watched private sector payrolls report later. The figure will show that the economy created 78,000 jobs this month, a big improvement from the 33,000 job cuts last month. 

The most important catalyst for the DXY Index will be the Federal Reserve interest rate decision. Economists expect the bank to leave interest rates between 4.25% and 4.50%, where they have been this year. In a statement, an analyst told Bloomberg that:

The next important catalyst for the DXY Index will be Thursday’’s personal consumption expenditure (PCE) data, which will provide more information on the US inflation. Economists expect the core PCE to rise from 0.2% in May to 0.3% in June, while personal income and spending are expected to improve slightly. 

The headline and core PCE numbers will come in at 2.5% and 2.7%, respectively, moving further away from the Fed target of 2.0%. Such a move will help to justify the Federal Reserve pause.

The final important data will come out on Friday, when the US will publish the latest nonfarm payrolls (NFP) data. These numbers will show that the economy remained steady in July, adding 147,000 jobs during the month, and the unemployment rate remained at 4.1%.

READ MORE: Why the US job market may actually crumble soon

DXY Index technical analysis

The daily timeframe shows that the US Dollar Index rebounded from the year-to-date low of $96.38 to $98.83 today. It has moved slightly above the important resistance level at $97.9, the lowest swing in April. 

There are signs that the index has formed an inverse head-and-shoulders pattern, a common bullish reversal sign. Therefore, this performance will likely lead to a bullish breakout, with the next point to watch being at $100.20, the lower side of the inverse cup-and-shoulders pattern.