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US Dollar Price Volatility Report: Will China GDP Spark Havens?

US Dollar Price Volatility Report: Will China GDP Spark Havens?

2019-10-17 20:34:00
Rich Dvorak, Junior Analyst
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US DOLLAR INDEX TESTING CRITICAL TECHNICAL SUPPORT LEVEL AS SELLOFF ACCELERATES

  • The US Dollar selloff is showing no signs of subsiding, but upcoming high-impact economic data releases like China GDP due Friday could create demand for safe haven currencies
  • USD price action looks to test key technical support levels with potential to springboard the greenback higher and keep the broader DXY Index afloat
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The US Dollar selloff continues to gain pace and has pushed the DXY Index well below the 98.00 price level. Yet US Dollar downside over the last two to three weeks is owed primarily to significant gains in EURUSD and GBPUSD driven by Brexit optimism.

Nevertheless, greenback weakness has begun to accelerate and spillover to other major US Dollar currency pairs like USDCHF and AUDUSD. As such, the US Dollar’s longstanding bullish trend could be in serious jeopardy if the DXY Index fails to quickly rebound off nearby technical support.

US DOLLAR INDEX PRICE CHART: WEEKLY TIME FRAME (JULY 17, 2017 TO OCTOBER 17, 2019)

US Dollar Index Price Chart Technical Analysis

Chart created by @RichDvorakFX with TradingView

Yesterday I drew attention to the US Dollar’s apparent rising wedge pattern etched out over the last two years. The DXY Index now seems to be probing its bullish support line extended from the series of higher lows recorded early last year and June 2019 higher swing low, which is illustrated on the weekly chart above.

This area of confluent support is also underpinned by its 20-SMA. If the US Dollar fails to catch bid at this major technical level, however, the 50-week simple moving average in addition to the 23.6% Fibonacci retracement of the DXY Index’s trading range since 2018 around the 97.00 handle could potentially keep USD price action afloat.

US DOLLAR IMPLIED VOLATILITY & TRADING RANGES (OVERNIGHT)

US Dollar Price Volatility and Implied Trading Ranges Chart

Though the world’s reserve currency faces little event risk scheduled for Friday’s trading session according to the DailyFX Economic Calendar, the US Dollar may very well be impacted indirectly by the release of 3Q China GDP and industrial production data – particularly if the closely watched economic reports disappoint. A worse-than-expected China GDP report stands to echo the latest World Economic Outlook from the IMF which detailed another downward revision to its estimates for 2019 Chinese GDP growth.

Additional evidence of slowing global GDP growth potentially revealed in Friday’s release of China GDP data at 2:00 GMT not only stands to spark volatility but could also serve as a principal catalyst that sparks a rebound in the US Dollar and safe-havens alike. Conversely, a solid 3Q GDP print from China will likely propel the latest stretch of risk appetite and stands to exacerbate recent US Dollar weakness.

US DOLLAR RISK REVERSALS (OVERNIGHT)

US Dollar Price Risk Reversal Skew Readings Chart

Overnight US Dollar risk reversals point to forex options traders’ bearish bias on balance headed into Friday’s trading session. A risk reversal reading above zero indicates that the demand for call option volatility (upside protection) exceeds that of put option volatility (downside protection). For additional insight on market positioning and bullish or bearish biases, traders can turn to the IG Client Sentiment data, which is updated in real-time and covers several currency pairs, commodities, and equity indices.

-- 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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