US dollar index forecast ahead of the September NFP

The US dollar index (DXY) held steady on Wednesday as investors refocused on the upcoming non-farm payroll (NFP) data and inflation. The index rose to $94.43, which was about 5% above the lowest level this year.

US non-farm payrolls data

The biggest catalyst for the US dollar index will be the NFP payroll numbers that are scheduled for Friday this week. These numbers will show whether the American economy continued adding jobs as the reopening continued.

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On Wednesday, data published by ADP Institute showed that the private sector added more than 568k jobs in September after adding 340k jobs in August. This increase was better than the median estimate of 428k. Still, the ADP estimate tends to have a big divergence with the official data by the Bureau of Labour Statistics.

On Thursday, the US will publish the latest initial and continuing jobs numbers. Economists expect the data will show that the country’s initial claims rose by 342k last week. That will be a decline from the 362k who filed claims in the previous week. The continuing claims are expected to drop from 2.8 million to 2.78 million.

The biggest mover for the dollar index will be the official NFP data. Economists expect the data to show that the economy added 473k jobs in September. This will be a significant increase from the previous month’s 235k. The unemployment rate is expected to drop from 5.2% to 5.1% while wages are expected to have risen by 4.6%.

The other catalyst for the DXY is inflation. With natural gas prices surging to an all-time high and with crude oil prices at a 7-year high, analysts expect that inflation will soon rally. Indeed, the 10-year breakeven rate to more than 4%, its highest level in 13 years.

US dollar index forecast

The daily chart shows that the DXY index has been in a strong bullish trend lately. The index managed to move above the key resistance level at $93.50, which was the highest level since April. The bullish view is also being supported by the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has been rising.

Therefore, the path of the least resistance for the dollar index is in the upside. This will push it to a high of $96, which is about 1.85% above the current level.