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US Dollar Price Volatility Report: Trade Talks, CPI on Deck

US Dollar Price Volatility Report: Trade Talks, CPI on Deck

2019-10-09 21:35:00
Rich Dvorak, Junior Analyst
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US DOLLAR REMAINS IN FOCUS AHEAD OF US-CHINA TRADE TALKS & CPI INFLATION DATA

  • The US Dollar edged slightly higher on Wednesday as the greenback awaits a fundamental catalyst to spark its next major move
  • USD price action stands to react sharply to US-China trade talk headlines and the release of consumer price index (CPI) data expected during Thursday’s trading session
  • Download our free 4Q-2019 Forecasts & Trading Guidesfor comprehensive fundamental and technical insight on the US Dollar

The US Dollar finished roughly flat on Wednesday as the world’s reserve currency fluctuated broadly in response to the latest US-China trade war headlines and details published by the Federal Reserve from its September monetary policy update. Trade talks between Washington and Beijing are set to resume Thursday, but both parties have already begun to lay the framework for upcoming negotiations.

It appears that Sino-American trade tensions are back on the rise following recent reports that the White House announced plans to blacklist 28 Chinese companies, which caused China to lower expectations for negotiations scheduled this week. Aside from potential developments out of the US-China trade war, US inflation data will be released at 12:30 GMT Thursday, which stand to be the two dominating catalysts that drive US Dollar price action during tomorrow’s trading session.

US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (APRIL 12, 2019 TO OCTOBER 09, 2019)

US Dollar Index Price Chart Technical Analysis

Chart created by @RichDvorakFX with TradingView

In light of the outstanding uncertainties surrounding upcoming trade war headlines and high-impact economic data expected to cross the wires, US Dollar forex traders lack the conviction needed to steer the greenback’s next direction. Judging by the DXY Index, the US Dollar is gravitating around its mid-point trading range etched out so far this month.

Respectively, the October 1 intraday high and October 3 intraday low seem to serve as nearside technical levels of resistance and support, which I have regularly commented on in the daily publishing of this US Dollar price volatility report.

US CONSUMER PRICE INDEX EXPECTED TO RISE CLOSER TO FED INFLATION TARGET

US Inflation Historical Core CPI and Core PCE Chart

It is important to note that the September FOMC minutes just published on Wednesday detailed sluggish inflation and elevated risks to the central bank’s economic outlook were the overarching factors that swayed the Fed to cut interest rates by 25-basis points for the second time this year.

Although the Fed prefers to track US inflation via core PCE, the metric tends to move in tandem with core CPI readings, which was recently clocked at this business cycle’s high of 2.4%. If inflation pressure continues to build, it could very well deter the Fed from cutting interest rates further.

US DOLLAR IMPLIED VOLATILITY & TRADING RANGES (OVERNIGHT)

US Dollar Implied Volatility Trading Ranges Chart

As one might expect, overnight implied volatility across major USD pairs jumped ahead of Thursday’s CPI report in light of elevated uncertainty typically brought about by high-impact economic data releases. USD/SEK is expected to be the most active G10 currency pair during Thursday’s trading session with an overnight implied volatility reading of 10.0%, which ranks in the top 92nd percentile of measures taken over the last 12-months.

Likewise, with US-China trade talks set to resume for the 13th round of negotiations, USD/CNH overnight implied volatility remains elevated. USD/JPY and USD/CHF could also experience heightened spot price action Thursday – particularly surrounding the release of US inflation data.

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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