DXY: US dollar forecast for June as a bullish pattern forms

The US dollar index (DXY) price moved sideways after the House of Representatives passed the debt ceiling deal. After having a spectacular performance in May, the DXY index was trading at $104.23, the highest it has been since March 17th. In all, the index has jumped by more than 3.4% from its lowest level this year.

Fed likely to pause

The US dollar index has been in a bullish trend as investors attempt to read the Fed tea leaves. Fed officials have been mixed on what they will do when they meet in June. Some officials like Loretta Mester and James Bullard believe that the bank should continue hiking rates since inflation is getting sticky.

On the other hand, some members like Raphael Bostic and Neel Kashkari, believe that the bank should pause now. They believe that pausing rate hikes will help the bank assess the implication of the past hikes. This view was supported by the new Fed Vice Chairman, Philip Jefferson. He said:

“A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle. Indeed, skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming.”

Recent numbers have been supportive of another rate hike in June. For example, as I wrote here, the housing market is doing well as home prices jumped for the second straight month.

Further, data published earlier this week revealed that consumer confidence is stil strong. And on Friday, the personal consumer expenditure (PCE) data showed that inflation was sticky. PCE, the Fed’s favorite tool, jumped by 4.7% in April. 

Non-farm payrolls (NFP) data

The next key driver for the DXY index will be the non-farm payrolls (NFP) scheduled for Friday. Economists believe that the labor market remains significantly tight. They expect that the country added over 230k jobs in May while the unemployment rate remained at 3.50%. ADP will publish its estimate for private payroll numbers.

Stronger-than-expected jobs numbers will provide an incentive for Fed officials to consider one more hike before hitting a pause.

The US dollar index will also react to the upcoming European inflation data. Numbers published this week showed that Spanish, French, and German inflation dropped in May as energy costs remained under pressure. European numbers are important because the euro is the biggest constituent of the US dollar index.

US dollar index forecast

The DXY index has been in a strong bullish trend after it crashed to a low of $100.87 earlier this year. It managed to move above the key resistance point at $102.81, the highest point on April 10. The bullish trend is being supported by the 50-period moving average while the MACD has started forming a bearish divergence pattern. It is between the 78.6% and 61.8% retracement level.

Most importantly, it seems like the index is forming a cup and handle pattern whose upper side is at $105.86. Therefore, the index will likely continue rising as buyers target $105.86. A move above this level will point to more upside for the index.


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