US dollar forecast ahead of consumer confidence data

The US dollar index declined for the second straight day as investors waited for the upcoming consumer confidence data. The DXY index dropped to a low of $104, which is about 1.72% below the highest level this year. This price is about 17% above the lowest level in 2021.

US consumer confidence data

The DXY index has retreated recently. This decline has coincided with the sharp crash of the CBOE volatility index, which is the favorite tool for measuring fear in the market. Further, it has coincided with a rise in the fear and greed index, which has risen to the fear zone of 28. It had remained at the extreme fear zone of below 20.

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The US dollar has retreated even after the hawkish tone by Jerome Powell, the Federal Reserve chair. In his testimony to Congress, Powell said that the bank will continue hiking interest rates in its bid to lower consumer and producer inflation. At some point, he even warned that these hikes will likely lead to a recession. 

The next key catalyst for the DXY will be the upcoming US consumer confidence data that is expected on Tuesday this week. Analysts expect the data by the Conference Board to show that the country’s consumer confidence dropped from 106.1 in May to 100 in June. 

Consumer confidence is one of the most important leading economic data because of the importance of American consumers. Their spending is the biggest part of the American economy. It could also have an impact on the country’s future growth. Besides, low confident consumers tend to limit their spending. 

Consumers are less optimistic because of the soaring inflation. Gasoline prices have jumped to an all-time high of $5 while mortgage rates have risen to 6%. 

The other key data to watch will be the upcoming pending home sales and durable goods orders that will come out later today.

DXY index forecast

The hourly chart shows that the dollar index has been in a strong bearish trend in the past few days. The index is now approaching the lower side of the descending channel and moved below the 25-day and 50-day exponential moving averages.

It has also formed what looks like a head and shoulders pattern, which is usually a bearish sign. Therefore, at this stage, the outlook for the index is neutral. A move below the lower side of the channel will signal that bears have prevailed. If this happens, the next key support level will be at $103.