DXY: Fed Decision Preview and Implication for the US Dollar Index
The US dollar index (DXY) is in a relatively tight range as investors wait for the Federal Reserve interest rate decision and the upcoming non-farm payrolls data. The index is trading at $94.10, where it has been in the past few days.
Fed decision and NFP data
The US dollar index was relatively unchanged in early trading as investors waited for the upcoming Fed decision. There are signs that the FOMC will sound a bit hawkish during this meeting because of the overall strength of the American economy.
Recent data showed that the country’s inflation has jumped to the highest level in more than a decade while the unemployment rate has been in a downward trend.
Indeed, data published in October showed that the overall unemployment rate declined to 4.8%. An unemployment rate of below 5% means that the economy is in full employment.
Therefore, the Fed is expected to hint that interest rate hikes will come in 2022. At the same time, the committee members will provide start tapering today. A report by the Wall Street Journal showed that the bank will start tapering by cutting the size of asset purchases by $15 billion.
The next key data to watch will be the latest US non-farm payrolls data scheduled for Friday. The numbers are expected to show that the unemployment rate declined to 4.7% in October while the economy added more than 400k jobs.
US dollar index forecast
The DXY index has moved sideways in the past few weeks. The index is trading at $94.10, which is above the important support at $93.50. It has also moved slightly above the 25-day and 50-day moving averages while the MACD is above the neutral level. It has also formed a small inverted head and shoulders pattern.
Therefore, the index will likely keep rising as bulls target the next key resistance level at $94.50, which was the highest level in October and September. On the flip side, a drop below $93.80 will invalidate the bullish view.