Dow Jones Outlook as the US Dollar Index (DXY) Rallies

Summary:
• The Dow Jones recovery gained momentum as investors waited for the upcoming retail earnings and as the dollar index rallied.

The Dow Jones recovery gained momentum as investors waited for the upcoming retail earnings. The index also rallied as the US dollar index (DXY) rebounds. It rose to a high of $34,000, which was the highest point since May 5th. The Dow has risen by over 14% from its lowest level this year.

US dollar index and retail earnings

The Dow Jones index rose sharply as the DXY index rose by more than 0.80% as investors focused on the weakening China economic data. Historically, the blue-chip American index tends to have an inverse relationship with the US dollar. Indeed, the Dow Jones has risen sharply as the dollar has pulled back from $109 to about $106.

The next key catalyst for the Dow Jones will be the upcoming earnings from the biggest retailers in the United States. Some of the top retailers to publish their results will be companies like Walmart, Target, Home Depot, and Lowe’s. These results will provide more color about the state of the retail industry in the US. In July, Walmart surprised investors when it lowered its forward guidance. 

The Dow Jones will also react to the latest American retail sales that are scheduled for Tuesday. These numbers will likely show that the overall retail sales declined in July because of the red-hot inflation data. The other important catalyst for the index will be the upcoming minutes by the Federal Reserve. Historically, these minutes tends to have an impact on American indices like the S&P 500 and the Nasdaq 100.

Dow Jones forecast

The four-hour chart shows that the Dow Jones index has been in a strong bullish trend in the past few months. Along the way, the index managed to move above the important resistance level at $33,250, which was the highest level in June. It has risen above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved to the overbought level. 

The index will likely continue rising as the bullish momentum continues. If this happens, the next key level to watch will be at $35,000. A move below the important support level at $33,250 will invalidate the bullish view.