The US dollar index (DXY) wavered on Thursday as traders waited for the important economic data from the United States and next week’s general election. It was trading at $104.17, a few points below the year-to-date high of $104.63. It remains about 4% above its lowest level this month.
US election ahead
The biggest catalyst for the US dollar index is next week’s general election, which will determine what will happen in the next four years.
Most polls show that the election results will be close, with Donald Trump and Kamala Harris being within a striking distance in all swing states.
The prediction market is solidly behind Donald Trump, with Polymarket having a 67% chance that he will win. PredictIt and Kalshi also have a 60% chance of him winning.
It is unclear whether these prediction markets will be correct though. Besides, there are chances of bias among Polymarket traders since most people in the industry favor Trump, who has pledged to make the US the crypto capital of the world.
The upcoming election has pushed the dollar hedging costs to the highest level since 2022, meaning that the market expects the currency to be highly volatile in the next few days.
A Trump win, in theory, should be bullish for the greenback because it would lead to more volatility and tensions globally. For example, he had pledged to deliver a universal 60% tariff on Chinese goods, which would lead to a tit-for-tat situation. A Kamala Harris win, on the other hand, would lead to status quo on US policies.
What is clear, however, is that the US public debt will continue rising in the coming years since the two have pledged to increase public spending. According to analysts, a Trump presidency would lead to a $7.5 trillion deficit, while a Harris win would push it higher by $3.5 trillion,
US NFP data ahead
The US dollar index also wavered ahead of the upcoming economic data from the country. Data released on Wednesday showed that the US economy expanded by 2.8% in the third quarter, missing the expected 3.0%.
Most of the economic growth was mostly because of the robust consumer spending in the US, a trend that could continue. Besides, a report released on Tuesday showed that consumer confidence jumped to its highest level in months.
Another report by ADP revealed that the private sector created over 250k jobs in October, meaning that the labour market was strong. Now the focus shifts to the upcoming US nonfarm payrolls (NFP), which will provide more color on the economy.
Economists polled by Reuters expect the data to show that the economy created 111k jobs in October, much lower than the 254k that were created in the previous month. The unemployment rate is expected to remain at 4.1%.
These numbers will help to determine what to expect in next week’s Fed meeting. A strong jobs report will point to a potential rate pause next week.
The other key data to watch will come out on Thursday when the US publishes the latest personal consumption expenditure (PCE) data. Economists see the data showing that the headline PCE price index retreated slightly from 2.2% in August to 2.1% in September. They also expect the core PCE to move from 2.7% to 2.5%.
The PCE report is usually the Fed’s favourite inflation gauge. However, its impact on the US dollar index will be limited since inflation is on track to hit the Fed’s target of 2.0%. The consumer price index dropped to 2.4%.
US dollar index analysis
DXY chart by TradingView
The daily chart shows that the DXY index has moved sideways in the past few days. It was trading at $104, higher than last month’s low of $100.
The pair has jumped above the 50-day and 200-day Weighted Moving Averages (EMA), meaning that bulls are in control.
Most importantly, it has formed a bullish pennant pattern, which is often seen as a positive sign. This pattern is characterised by a long vertical line and a small triangle chart pattern.
Therefore, the index will likely have a bullish breakout as bulls target the descending trendline that connects the descending trendline that connects the highest swings since October last year.
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