The US dollar index made a bearish breakout ahead of a relatively busy week that will determine its performance for the rest of this year. The closely-watched DXY index retreated to a low of $104.12, the lowest level since February 22nd of this year. It has plunged by more than 1% from its highest level this year.
Jerome Powell statement ahead
The US dollar index continued pulling back as investors waited for the upcoming statement by Jerome Powell. He will testify in Congress, where he will highlight some of the Fed’s strategies to beat inflation. Also, he will provide forward guidance on what to expect in the upcoming meeting.
The main catalyst for the DXY index will be his statement on the inflation situation in the United States. In his previous statement, Powell said that the US was seeing disinflation pressures but warned that low unemployment rate was a risk to the inflation fight. Therefore, reiterating the disinflation statement will be bearish for the US dollar.
The other catalyst for the US dollar index will be the upcoming non-farm payrolls (NFP) data scheduled for Friday. Economists polled by Reuters expect that the unemployment rate remained at 3.4%, which is the lowest level in more than 53 years. They also expect that the economy added more than 300k jobs in February.
The labor market has been quite tight in the past few months even as several large companies have slashed their workers. According to the Bloomberg, the Meta Platforms is planning another round of layoffs in a bid to save more costs.
The DXY index will next react to next week’s consumer inflation data. The view is that inflation remained at an elevated level in February. Gasoline price is still averaging $3 per barrel and there are signs that crude oil prices will continue rising. In an interview, the CEO of Pioneer Natural Resources said that oil prices could rise to $100 soon. In a note, analysts at ING wrote that:
“It does not look like we have any hawkish ECB members due to speak today which suggests DXY might nudge back to the top of a short-term 104.00-105.00 range. In the medium term, we retain the view that the dollar will break lower later this year.”
DXY index forecast
The 4H chart shows that the US dollar index dropped to the key support level at $104.08, which was the lowest point on March 1. This price is a bit lower than the lower side of the rising wedge pattern that is shown in green. It also seems like it has formed a double-bottom pattern, which is usually a bullish sign. The USD is also hovering near the 23.6% Fibonacci Retracement level.
Therefore, a break below the support at $104 will open the opportunity of the index to fall to the 50% Fibonacci Retracement level at $103.10. The stop-loss of this trade will be at $105.
Source: https://invezz.com/news/2023/03/07/us-dollar-index-dxy-forms-a-double-bottom-at-the-23-6-fib/