The US dollar index (DXY) has been under pressure this week as the heightened Delta variant risks eased. The index is trading around 93, which is a bit lower than last week’s high of $93.50. Still, it has risen by about 4% from its lowest level in July this year.
Jackson Hole Summit ahead
The DXY index is struggling as investors wait for the upcoming Jackson Hole summit. This is an annual event that brings together most central bank governors together in Wyoming. In the past, the summit has had significant implications for the US dollar and other currencies. Central bank governors tend to make important announcements on monetary policy during the sessions.
The impact of this year’s summit will likely be muted, considering that it will take place virtually because of the Covid pandemic. As such, leading media entities like Bloomberg and CNBC will likely not get a chance to interview central bankers as they usually do.
Still, the US dollar index will likely react to a statement by Jerome Powell, the Federal Reserve chair. He has been relatively muted recently as the White House considers whether to reappoint him. Janet Yellen, the former Fed chair and current Treasury secretary has expressed her support for Powell.
His statement will be notable considering that some members of the Federal Open Market Committee (FOMC) like Raphael Bostic and Mary Daly have supported a move towards tapering asset purchases. Last week, the FOMC minutes showed that more members were open to the idea of tapering purchases. Therefore, analysts will be looking forward to a statement by Powell, who is the most important member of the bank.
Other central bank governors who will have an impact on the US dollar index during the summit are Christine Lagarde of the European Central Bank (ECB) and Andrew Bailey of the Bank of England (BOE).
US GDP and PCE data
In addition to the Jackson Hole summit, the US dollar index will react to additional important numbers from the US. On Thursday, the commerce department will publish the latest durable goods orders. These are important numbers because they are key indicators of the health of the country’s manufacturing sector. Analysts expect the data to show that overall orders declined by 0.3% in July, while core orders rose by 0.5%.
These numbers will come a day after the US published strong new home sales numbers. On Monday, it also published strong existing home sales numbers, signaling that the housing sector is doing modestly well.
On Thursday, the statistics agency will release the second estimate of US GDP data. These numbers will include additional statistics that were not available during the first reading. Analysts expect that the American economy expanded by 6.5% in the second quarter. On the same day, the Labor Department will publish the latest initial and continuing jobless claims numbers.
Finally, on Friday, the US will release the personal consumption index (PCE), which is the Fed’s most important inflation gauge.
US dollar index forecast
The weekly chart shows that the DXY formed a double-bottom pattern at $89.50. In price action analysis, a double-bottom pattern is usually a bullish signal. This is notable considering that the price is along the neckline of this pattern.
It is also slightly below the 38.2% Fibonacci retracement level and above the 25-day and 50-day Moving Averages. Therefore, the index will likely break out higher. This view will be confirmed if it rises above the key resistance at $93.50.
