USD PRICE OUTLOOK: DXY INDEX RALLIES TO 2-WEEK HIGH, BUT TECHNICAL RESISTANCE THREATENS US DOLLAR REBOUND
- The US Dollar could quickly pivot back lower against major currency pairs if a critical technical level prevents a sustained rebound attempt
- Currency volatility is projected to fall next week judging by 1-week implied USD price action derived from forex options contracts with the US holiday season kicking into full gear
- IG Client Sentiment provides real-time insight on market positioning and the bullish or bearish biases of traders on several currencies, commodities and equity indices
The US Dollar staged a healthy rebound attempt over the last 5 trading days with the DXY Index – a popularly referenced basket of major USD currency pairs – advancing to its strongest level since December 06.
In addition to lingering US-China trade deal optimism, overall solid US economic data has helped chisel away at FOMC rate cut expectations.
The recent rise in the US Dollar could also be technically explained with the 96.50 price level likely serving as a springboard for the Greenback’s bounce higher.
US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (APRIL 2019 TO DECEMBER 2019)
Chart created by @RichDvorakFX with TradingView
Next week could provide clarity on whether the rebound in the US Dollar will last or be short lived with the DXY Index approaching a key level of technical resistance.
This area of confluence that may keep a lid on further upside in the US Dollar Index is highlighted by its 50-day and 200-day simple moving averages, which seem to be foreshadowing a bearish death cross.
US DOLLAR IMPLIED VOLATILITY & TRADING RANGES (1-WEEK)
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One likely headwind faced by the US Dollar headed into next week is the plunge in expected currency volatility, which could be attributed to the historically quiet period that surrounds the Christmas holiday.
Nevertheless, this could potentially provide forex traders with range trading opportunities with little fundamental catalysts for big moves scheduled on the economic calendar.
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).
-- Written by Rich Dvorak, Junior Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
