US Dollar Outlook: DXY Index Extends Rally Ahead of PMIs, NFPs

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US DOLLAR PRICE OUTLOOK: DXY INDEX CLIMBS TO FRESH POST-FOMC HIGHS

  • US Dollar bulls made a strong push to close out the first half of the year 2.7% higher
  • DXY Index might challenge trend resistance as economic data weighs on Fed taper bets
  • Bookmark and revisit our Real Time News page for timely market news and analysis

The US Dollar finished June and the first half of 2021 on a positive note after climbing 0.3% higher during Wednesday’s trading session. This brings year-to-date gains notched by the DXY Index to 2.7% on balance. Fed officials have revealed notably hawkish shifts in policy guidance with the latest dot plot and subsequent commentary. As such, recent US Dollar strength largely comes in response to markets pricing greater risk of Federal Reserve tapering.

Fed Chair Jerome Powell has been vocal about downplaying the dot plot and FOMC taper risk, which helped fuel a slight retracement of US Dollar strength. US Dollar bulls have since made another push this week, however, as high-impact economic data comes into focus. Specifically, markets already digested scorching red-hot consumer confidence data yesterday and a big beat on ADP employment this morning. Plus, there will likely be considerable emphasis placed on the upcoming release of monthly PMI and NFP reports due later this week.

DXY – US DOLLAR INDEX PRICE CHART: WEEKLY TIME FRAME (DEC 2020 THROUGH JUN 2021)

DXY Index Price Chart US Dollar Forecast

Chart by @RichDvorakFX created using TradingView

Broad US Dollar strength seen across the board of major currency pairs leaves the DXY Index eyeing confluent resistance around the 92.50-92.80 price zone. Seen on the chart above, this area is reinforced by a key descending trendline, the upper Bollinger Band, and 23.6% Fibonacci level. While it is possible that month-end and quarter-end flows may have exacerbated US Dollar strength so far this week, there is potential that bulls will look to challenge this technical obstacle. To that end, invalidating this technical resistance level could open up the door for the DXY Index to embark on its next leg higher.

There will likely need to be a catalyst to fuel another extension higher, however. Nonfarm payrolls data due Friday stands out as a strong candidate with enough impetus to accelerate US Dollar buying pressure. This might correspond with better-than-expected readings on the headline change in NFPs and unemployment rate as that would likely up the pressure on Fed officials to provide a timeline for tapering asset purchases. That said, in-line PMI and NFP reports could disappoint Fed hawks and US Dollar bulls, which could see an unwind of recent taper speculation.

— Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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