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US Dollar Outlook: Implied Volatility & Trading Ranges for Next Week

US Dollar Outlook: Implied Volatility & Trading Ranges for Next Week

2019-11-01 21:02:00
Rich Dvorak, Junior Analyst
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USD PRICE OUTLOOK: US DOLLAR IMPLIED VOLATILITY & TRADING RANGES FOR NEXT WEEK

  • The US Dollar was sent on a rollercoaster ride last week as the greenback whipsawed around the latest trade war headlines, FOMC rate cut as well as data on Q3 US GDP, nonfarm payrolls (NFP) and the ISM Manufacturing PMI
  • USD price action remains under pressure and the lack of a sustained rebound next week poses a major threat to the US Dollar’s longstanding bullish trend
  • Find out forex trading Tips and Strategies for the US Dollar Index

The US Dollar is resting on the edge of a cliff after a volatile trading week left the DXY Index roughly 0.75% lower despite spiking higher quite significantly in response to the latest FOMC decision and solid NFP report, but quickly pivoted lower during Chair Powell’s press conference and on a disappointingISM Manufacturing PMI reading.

A weekly US Dollar Index price chart reveals the greenback’s broader technical backdrop and brings to light the bearish rising wedge pattern seemingly etched out since mid-2017. Further underscoring downside in USD price action is the apparent bearish engulfing candlestick printed this past week after a rejection at the 98.00 handle near and the rolling 20-week simple moving average on the DXY Index.

US DOLLAR INDEX PRICE CHART: WEEKLY TIME FRAME (JULY 24, 2017 TO NOVEMBER 01, 2019)

US Dollar Price Chart Outlook Technical Analysis

Chart created by @RichDvorakFX with TradingView

Though the US Dollar is currently gravitating around confluent support near the 97.00 price zone, which is highlighted by the greenback’s 50-week SMA and 23.6% Fibonacci retracement level. US Dollar selling pressure has potential to reaccelerate quickly if this area of technical support fails to bolster USD prices.

The RSI dipped back below 50 while the MACD shows bearish momentum gaining pace. The 200-week SMA and swing low recorded this past June close to the 96.00 handle comes into focus as the next possible technical support level while confluent resistance remains around the 98.00 price level.

US DOLLAR – FOREX ECONOMIC CALENDAR

US Dollar Forex Trading Economic Calendar Event Risk

Shifting gears to a fundamental perspective brings to focus the ISM Non-Manufacturing/Services PMI Report and the UMich Consumer Sentiment Survey (listed on the DailyFX Economic Calendar). These high-impact data releases slated for next week leaves the US Dollar at risk due to their typically sizable influence on FOMC rate cut expectations – particularly if the headline figures cross the wires materially above or below consensus estimates. Forex traders could also eye event risk surrounding the US trade balance, consumer credit as well as continuing claims for potential USD price action catalysts.

FOMC RATE CUT EXPECTATIONS (MARCH 2020)

Chart of Fed Rate Cut Expectations for December 2019

The probability that the FOMC cuts rates for a fourth consecutive meeting this December has plunged from 32.8% last week to the most recent reading of 15.9% according to overnight swaps pricing. Meanwhile, the probability that the Fed stands pat on rates has skyrocketed from 63.0% to 84.1% over the same period.

US DOLLAR IMPLIED VOLATILITY & TRADING RANGES (1-WEEK)

US Dollar Implied Volatility Trading Ranges EURUSD, GBPUSD, USDJPY, AUDUSD, USDCAD

With significant event risk faced by the US Dollar now in the rearview mirror – like the 3Q US GDP report, FOMC rate decision and October NFP figures – expected volatility across the major USD currency pairs has receded quite a bit. However, that is not to say USD price action will lack catalysts for volatility.

EUR/USD, USD/JPY, and AUD/USD are all gravitating around major technical levels and how US Dollar performance evolves next week could be quite telling if the greenback will resume its steep slide or attempt to claw back recent downside. Also, USD/CAD could catch forex traders’ attention with Canadian employment data due for release and may exacerbate recent weakness in the loonie if the jobs report disappoints.

US DOLLAR RISK REVERSALS (1-WEEK)

US Dollar Risk Reversal Price Chart EURUSD GBPUSD USDJPY AUDUSD USDCAD

Broadly speaking, forex options traders appear to have a bearish bias on the greenback headed into next week judging by 1-week US Dollar risk reversals. 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. Check out last week’s US Dollar Price Volatility Report for a recap on the US Dollar and compare prior USD implied volatility trading ranges.

-- 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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