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The US dollar index has risen by almost a figure since the start of the week. First support came from expectations and then from actual strong retail sales data. Is this catalyst enough for a further rise in the US currency and what are the targets for a stronger DXY?
DXY
Tuesday’s report showed that US retail sales rose by 1.7% in October against an expected increase of 1.4%. September’s increase was revised up from 0.7% to 0.8%.
There were two reasons for this development. Firstly, Americans probably started to do their holiday shopping early, fearing that by the end of the year, due to supply chain disruptions, the shop shelves would empty. Secondly, inflation and attempts to avoid price increases may have had an impact.
The development of retail sales already indicates that the US economy is growing in the fourth quarter, although GDP data will be released late into the new year. In addition to the strong labour market report there is a picture of favourable conditions for an earlier interest rate increase by the Fed.
If the central bank had previously feared that a tightening of monetary policy would damage the fragile economic recovery, the data from October reduces the threat. Although the timing of the rate hike is not yet in question, the wait-and-see factor is working, which is causing the dollar to rise against a basket of currencies.
An additional driver supporting the dollar index could be the weakness of the single European currency. The ECB does not intend to take action to combat inflation in the near future. And a prolonged ultra-soft monetary policy will put pressure on the euro.
From the technical point of view there is also a favorable situation for the USD index. The price broke through the mirror resistance at 94.5 last week, and now it reached the next target at 96.0. A break above this target would open the way for the Dollar Index to 98.0.
08.00 UK consumer price index for October
11.00 Eurozone consumer price index for October
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