The DXY index continued its freefall this week as European currencies like the euro and sterling bounced back. The US dollar index has slopped in the past four straight weeks for the first time since April 2021. It was trading at $101.50 on Wednesday, the lowest point since January 30th.

Non-farm payrolls data ahead

The US dollar index has been in a freefall as the outlook of the European economy changed. At the beginning of the year, the consensus among most analysts was that the European economy would sink into a major recession. The main culprit for this view was natural gas prices as the Russian invasion of Ukraine intensified. 

This view was wrong as natural gas prices dropped to the lowest level in more than 2 years in the first quarter since Europe was relatively warmer in winter. Therefore, analysts believe that the European economy will bounce back this year. As a result, the European Central Bank (ECB) has turned out to be more hawkish than the Federal Reserve, which explains why the EUR/USD pair has jumped sharply recently. 

Concerns about the British economy also seem a bit wrong considering that the economy has been more stable than what analysts were expecting. The GBP/USD pair risen to the highest level in months. 

The DXY index also slipped after the US published weak job vacancy numbers. According to the Bureau of Labor Statistics (BLS), the economy had over 9 million vacancies in February, the first time it was below 10M in years. These numbers warn that the labour market was slowing. 

The next catalyst for the US dollar index (DXY) will be the upcoming non-farm payroll (NFP) data scheduled for Friday. Economists expect that the economy added over 200k jobs in March while the unemployment rate dropped to 3.5%. These numbers are important because the Fed has committed to be data-dependent. 

DXY index forecast 

(Click on image to enlarge)

USD index chart by TradingView

The weekly chart shows that the US dollar index has been in a freefall in the past few weeks. This decline started when the index found a strong resistance at $106 on March 6.

The index has moved below the 50% Fibonacci retracement level and the key support at $103, the highest point in May 2020. It has crossed the 50-week moving average and is trading at the 100-week MA. 

Therefore, the index will likely continue falling as sellers target the next key level of $100. A drop below that resistance will push it to the 62.8% retracement level at $98.97.

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