US dollar index (DXY) forecast for September 2023

The US dollar index (DXY) continued rising on Monday as risks to the American and global economy continued. It jumped to a high of $106.87, the highest since November last year. The index has jumped by more than 7.36% from its lowest level in July.

The US dollar index had a strong performance in August as investors continued worrying about the rising risks in the market. Economic data published during the month showed that the headline consumer price index (CPI) rose by 3.7% in August while core CPI retreated to 4.3%.

Inflation likely continued rising in September as the cost of energy jumped. Brent soared to a high of $96 after Saudi Arabia and Russia decided to slash production. As a result, gasoline prices averaged over $3.8 during the month.

The DXY index also jumped as recession probabilities rose. For example, the yield curve inverted to the lowest level since the 1930s as the long-term bond sell-off continued. The 10-year and 30-year yields jumped to the highest level in more than a decade.

Further, there were labour risks as the UAW strike started and Congress threatened to shut the government down. The latter risk ended on Saturday when the House of Representatives and Senate voted for a short-term spending deal.

Looking ahead, October will be dominated by the ongoing risks in the market, including energy and inflation. Higher energy prices will lead to inflation fears, which will push the Federal Reserve to consider hiking rates.

The Fed will not meet in October but officials will speak in several events. The key central banks that could move the DXY index are the European Central Bank (October 26th), Bank of Japan (October 31st), and Reserve Bank of Australia (RBA).

The DXY index has been in a strong bullish trend in the past few months. Along the way, the index has risen above the key resistance levels at $104.80 (May 31st high) and $105.93 (March 8 high). The index also formed a golden cross pattern, where the 50-day and 200-day moving averages make a bullish crossover.

At the same time, the Relative Strength Index (RSI) have continued rising and is now at the overbought level. Therefore, I suspect that the US dollar index will continue rising as buyers target the key resistance at $110.

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