The US dollar index (DXY) has suffered a major meltdown this week. It has dropped in the past four straight days and is trading at the lowest level since August 5. It has fallen by more than 1.65% from the highest level since August.
Non-farm payrolls ahead
The DXY index has declined as investors wait for the official US jobs numbers. While the economy has more than 10 million vacancies, analysts expect the numbers to show a modest decline.
Precisely, the median estimate is that the economy added more than 750k jobs in August. This will be the first month that the US has added less than 900k jobs.
On Wednesday, data by ADP revealed that the economy added more than 374k jobs. Additional jobs published on Thursday showed that the number of initial jobless claims declined to 340k, the lowest level on record. Therefore, the official results will likely lead to more volatility for the dollar index.
At the same time, many analysts and the European bond market is sending hints that the ECB will start tapering soon. Therefore, analysts will be watching the upcoming ECB interest rate decision. This is important since the euro is the biggest constituent of the dollar index.
US dollar index forecast
The hourly chart shows that the DXY index has been in a steep sell-off lately. The index has moved slightly above the lower trendline shown in black. It is also slightly below the 25-day and 50-day moving averages while the MACD has continued the bearish trend.
Therefore, the outlook of the dollar index is bearish so long as it is below the two moving averages. The next key levels to watch will be the psychological level at $92.00. On the flip side, a move above $92.45 will invalidate this view.