The US dollar index (DXY) is a little changed on Monday as the market reflects the recent strong economic data from the United States. The index is trading at $89.9, which is slightly above this month’s low of $89.67.
Strong US economic data
The dollar index has struggled in May even after the relatively strong data from the US. Two weeks ago, the Bureau of Economic Analysis published the relatively strong consumer price index (CPI). They were followed by the strong producer price index (PPI) and retail sales numbers.
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Last week, data from the US was also strong. On Thursday, numbers published by the Bureau of Labour Statistics (BLS) revealed that the number of Americans filing for initial jobless claims declined to the lowest level since the pandemic started in a sign that the labour market was tightening.
And on Friday, data by Markit revealed that the US manufacturing and services PMI increased to 61.5 and 70.1, respectively. This increase pushed the composite PMI to 68.1, the highest level in years. This is a sign that the American economy is firing on all cylinders as the vaccination drive continues.
This week, the dollar index will react to the Conference Board consumer confidence data that will come out on Tuesday. Analysts polled by Reuters expect the data to show that the overall confidence rose to 119 in May. The data will be followed by the important second estimate of the UK first-quarter GDP data. Analysts expect the numbers to reveal that the economy expanded by 6.5% in the first quarter. This will be slightly higher than the previous estimate of 6.4%.
The DXY will also react to the closely watched personal consumer expenses (PCE) data that will come out on Friday. Economists expect the data to show that the PCE increased by more than 3% in April. This is an important number that the Fed pays close attention to measure inflation.
US dollar index forecast
The four-hour chart shows that the DXY has been in a tight range recently. The index has found substantial support at $89.66. It has also formed a descending triangle pattern and the 25-day and 15-day weighted moving averages. At the same time, the signal and main lines of the MACD indicator have formed a bullish divergence pattern.
Therefore, because of the descending triangle pattern, there is a possibility that the dollar index will break out lower as bears attempt to push it below $89. However, because of the bullish divergence pattern, another breakout cannot be ruled out. In a note, analysts at ING said:
“Assuming the Fed speakers of Brainard, Mester, Bostic, and George have nothing untoward to say, we would expect DXY to drift back to recent lows at 89.65.”
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