The US dollar index (DXY), which measures the greenback against a basket of currencies, continued its strong rally after Donald Trump’s election victory in the US. The DXY, which measures the greenback in relation to a basket of currencies rose to $106.7, also ahead of the US consumer price inflation data. It has risen by 5.8% since its lowest level of the year.
DXY index continues to rise amid a risk-off sentiment
The US dollar index continued to rise as investors adopted a risk-off attitude after Trump’s victory. This rally occurred as the currency rose against all currencies in index.
The euro fell to 1.0600, its lowest since April 22, and the British pound to 1.2750 – a level that was lower than the high for the year of 1.3422. The greenback also fell against currencies such as the Japanese yen and Swiss franc.
This crash is mainly due to what Trump promised and the implications during the campaign. Trump, for example, promised to have the largest deportation force in history and has appointed senior officials committed to this.
If the strategy is successful, it will lead to inflation since many undocumented workers work in key sectors such as agriculture and construction. If all these workers leave, there will be a shortage of labor, which will lead to higher prices.
Trump also promised to impose large import tariffs, particularly on products from China. This move will have major consequences, as the tariffs will be passed on to American consumers and lead to higher inflation.
In response, other countries will impose tariffs on American products. China will likely impose more tariffs on US crops, and even Boeing, which is one of the country’s top sellers.
Trump has also tried to influence the Federal Reserve. This will be difficult, as a president can only dismiss officials for good cause. The US has a system of checks-and-balances that will prevent Trump doing certain things.
US inflation data ahead
The consumer inflation data due on Thursday will be the next important US Dollar Index news. Economists anticipate that these numbers will reveal that prices remained stable in October, and the headline CPI rose to 2.6%.
The core CPI, which excludes volatile food and energy costs, remained at 3.3%. If these numbers are correct, the Federal Reserve could decide to keep interest rates the same at the last meeting of the calendar year.
These numbers will be released a week after the Federal Reserve cut interest rates by 0.25 percent and hinted at more to come. Other global central bankers, such as the European Central Bank (ECB) and the Bank of England, are also cutting interest rates.
The US inflation data is unlikely to have a significant impact on the US Dollar Index, as the Fed has shifted its focus to the labor market. Data showed that only 12,000 jobs were created in October while the unemployment rate increased to 4.1%.
Technical analysis of the US dollar index
The daily chart shows the US dollar index in a strong bull market after it bottomed out at $100.12, on September 26. The 200-day and the 50-day Weighted moving averages (WMA) have crossed each other, forming a golden cross.
The Relative Strength Index and the Stochastic oscillator have both continued to rise, indicating a bullish mood. It has also jumped over the 38.2% Fibonacci retracement level.
The DXY index is likely to continue rising as bulls aim for the 50% retracement level at $107.15. This view will be invalidated if the index falls below the key support at $105.
This post US Dollar Index: DXY forms an unusual pattern, pointing towards more gains may be updated as updates unfold
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