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US Dollar Outlook: GBP/USD, AUD/USD, USD/MXN Set for Volatility

US Dollar Outlook: GBP/USD, AUD/USD, USD/MXN Set for Volatility

2019-12-18 21:12:00
Rich Dvorak, Analyst
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US DOLLAR OUTLOOK: GBP/USD, AUD/USD, USD/MXN IN FOCUS WITH BOE MEETING, AUSTRALIAN EMPLOYMENT & BANXICO DECISION ON DECK

USD price action edged higher throughout Wednesday trade on balance judging by performance in the US Dollar Index (DXY). The DXY Index has climbed higher so far this week, which follows the Greenback’s slow and steady decline from its October swing high to a 5-month low.

The benchmark of major US Dollar currency pairs now approaches a level of technical confluence (most notably its 200-DMA) that might stymie a sustained rebound attempt. That said, forex traders will likely have their focus turned toward counterpart price action headed into Thursday’s trading session considering the swath of high-impact event risk and data releases outlined on the economic calendar.

Correspondingly, GBP/USD, AUD/USD and USD/MXN stand out due to their potential for above-average swings in spot prices over the next 24-hours judging by elevated overnight implied volatility readings on these US Dollar crosses.

GBP/USD PRICE CHART: DAILY TIME FRAME (OCTOBER 2019 TO DECEMBER 2019)

GBP to USD Price Chart Technical Analysis US Dollar Outlook

Spot GBP/USD prices have drifted lower since the spike higher last week driven by the UK election results. While the British Point initially rejoiced the Tory path to Brexit, more recent developments like PM Boris Johnson putting no-deal Brexit risk back on the table seems to be weighing negatively on the Sterling and GBP/USD.

GBP/USD BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 11% -2% 4%
Weekly -1% -9% -5%
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A more immediate threat, however, could be Thursday’s Bank of England (BOE) interest rate decision due for release at 12:00 GMT. GBP/USD price action could find intermittent support around the 1.3000 handle, which is roughly underpinned by its 50-day exponential moving average and 38.2% Fibonacci retracement level of the cable’s trading range since the October swing low. On the other hand, nearside resistance could appear around the 1.3200 mark and 23.6% Fib.

AUD/USD PRICE CHART: DAILY TIME FRAME (JULY 2019 TO DECEMBER 2019)

Spot AUD to USD Price Chart Technical Analysis US Dollar Outlook

AUD/USD prices have an interest technical backdrop that is highlighted by the 50-day moving average and short-term uptrend line of support, which will look to keep the Australian Dollar bid relative to its US counterpart. The recent rise in spot AUD/USD prices can be explained predominantly by a flood of risk appetite surrounding confirmation of a phase one trade agreement between the US and China.

AUD/USD BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 6% -1% 3%
Weekly 32% -22% 0%
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Yet, upcoming Australian employment data set to cross the wires Thursday at 00:30 GMT could have a material impact on RBA interest rate cut expectations and thus may strongarm the direction of the Aussie and spot AUD/USD price action. A breakdown below the rising trendline and 38.2% Fib of the currency pair’s trading range sine the July 18 swing high cold open up the door for AUD bears to target the 0.6800 handle.

Read More – AUD/USD Price Outlook: Australian Dollar Affixed to its 200-DMA

USD/MXN PRICE CHART: DAILY TIME FRAME (JULY 2019 TO DECEMBER 2019)

Chart of USD to MXN Price Technical Analysis US Dollar Outlook

As for USD/MXN – the world’s most liquid and heavily traded emerging market currency pair – the US Dollar to Mexican Peso exchange rate will likely get a jolt from the Banxico interest rate decision due for release Thursday at 19:00 GMT. Mexico’s central bank, Banco de Mexico, recently cut its benchmark interest rate by 0.25% last month, though the decision was divided amongst Banxico officials as several called for a 50-basis point cut.

On that note, spot USD/MXN could be in for a sharp rebound higher if Banxico cuts its policy interest rate lower than the expected 7.25% target from the current 7.50% level. Likewise, the psychologically-significant 19.000 handle has previously served as a strong zone of confluent support, which has potential to keep the US Dollar afloat relative to the Mexican Peso going forward.

US DOLLAR IMPLIED VOLATILITY & TRADING RANGES (OVERNIGHT)

Chart of US Dollar Implied Volatility Trading Ranges GBP/USD, AUD/USD, USD/MXN

Take a look at this insight on how to trade the Top 10 Most Volatile Currency Pairs

Options-implied trading ranges are calculated using 1-standard deviation (i.e. 68% statistical probability price action is contained within the implied trading range over the specified time frame).

Keep Reading – New Zealand Dollar Forecast: NZD Price Action Eyes GDP Data Due

-- 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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