US dollar index forecast ahead of US inflation data

The US dollar index (DXY) was little changed on Monday morning as investors reflected on the latest American non-farm payrolls (NFP) and the upcoming inflation data. The index is trading at $94.12, where it has been in the past few days. It is about 0.50% above the lowest level this month.

US inflation data ahead

The US released relatively weak jobs numbers on Friday. The data revealed that the country’s economy added just 194k jobs in September after it added 366k in the previous month. This was the lowest job addition in several months and was a signal that the recovery is not as strong as was expected. The data was also less than the ADP estimate of 543k.

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On the positive side, the US unemployment rate declined to 4.8% in October after rising by 5.1% in the previous month. The falling unemployment rate could be a signal that many Americans are staying away from the labour force. At the same time, the participation rate held steady at around 61.4%.

The US dollar index will also be in the spotlight this week for two main reasons. First, the US will publish the latest inflation numbers on Wednesday. The numbers are expected to show that the country’s headline consumer price index (CPI) rose by 5.3% in September. The core CPI, which excludes the volatile food and energy prices, is expected to remain at 4.0%.

The US inflation data will provide signals that the US is going through a period of stagflation. Stagflation is a period where a high unemployment rate coincides with high inflation. 

Second, the DXY index will also react to the latest bank earnings from the United States. Some of the top companies that will publish their results this week are Blackrock, JP Morgan, and Morgan Stanley.

US dollar index forecast

The daily chart shows that the US dollar index has been in a tight range after the latest employment numbers. The index managed to move above the key support level at $93.70, which was also the highest level on August 20. It has also moved above the 25-day and 50-day moving averages. Therefore, the DXY index will likely keep rising as bulls target the YTD high of $94.50.