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US Dollar Volatility Report: USD Price Analysis & Trading Levels

US Dollar Volatility Report: USD Price Analysis & Trading Levels

Rich Dvorak, Analyst

USD FORECAST: US DOLLAR EXTENDS BREAKOUT AS CURRENCY VOLATILITY RESURFACES

  • USD price action has dominated the direction of most major currency pairs as the US Dollar Index notches its strongest reading since April 2017
  • FX volatility remains eerily low despite EUR/USD and AUD/USD breaking down to test multi-year technical barriers
  • Sparse technical resistance facing the DXY Index might enable a prolonged surge in the broader US Dollar

The US Dollar continues to ramp higher as demand for safe-haven currencies lingers. Risk-aversion permeating across the forex market is owed largely to ongoing angst that surrounds the novel coronavirus outbreak and its impact on the global economy.

Resilience of the US economy – underpinned by robust nonfarm payrolls and consumer spending – has widely contributed to strength exhibited by the US Dollar. The Greenback’s vast liquidity and positioning as the world’s reserve currency is likely exacerbating the surge in USD price action as well. I highlighted these fundamental drivers in a US Dollar forecast published last Friday.

US DOLLAR INDEX – DXY PRICE CHART: WEEKLY TIME FRAME (DECEMBER 2016 TO FEBRUARY 2020)

DXY Index Price Chart US Dollar Forecast

Chart created by @RichDvorakFX with TradingView

Considering that the DXY Index is weighted overwhelmingly to EUR/USD performance, which has broken down to its weakest reading since April 2017, it comes as little surprise that the US Dollar is trading around its strongest level in nearly three years.

A 3.5% rally in the broader US Dollar year-to-date has pushed the DXY Index inches away from touching the ominous 100.00 handle. Technical resistance faced before reaching this psychologically-significant technical barrier seems quite limited, which could aid USD price action in its upward ascent.

USD PRICE OUTLOOK – US DOLLAR IMPLIED VOLATILITY & TRADING RANGES (1-WEEK)

USD Price Chart US Dollar Forecast Implied Trading Ranges Currency Volatility

Learn More: How to Trade the Top 10 Most Volatile Currency Pairs

Despite the US Dollar skyrocketing over the last several trading sessions, FX volatility appears exceptionally low judging by the latest 1-week implied volatility measurements taken across select USD pairs.

USD Forecast
USD Forecast
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This could, on one hand, suggest that the forex market remains complacent and is severely mispricing expected USD price action. On the contrary, suppressed currency volatility could indicate that the US Dollar’s onslaught is reaching its limits and a mean-reversion lower may be overdue.

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 – US Dollar Price Action Setups: EUR/USD, USD/CAD, USD/JPY

-- 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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