US DOLLAR OUTLOOK: USD PRICE ACTION BUILDS SUPPORT AS VIX INDEX ‘FEAR-GAUGE’ SPIKES HIGHER & STOCKS PLUNGE
- US Dollar searches for a base as the DXY Index bounces off the 96.00-price level
- S&P 500, Dow, Nasdaq turn sharply lower despite dovish FOMC rate guidance
- VIX ‘fear-gauge’ surges after another week of 20-million continuing jobless claims
US Dollar finally catches a bid and looks to reverse some of its 4% decline recorded since its May 25 swing high. Just 24-hours after the latest FOMC announcement, which widely reiterated the central bank’s dovish commitment to keeping interest rates lower for longer and its liquidity spigot flowing steadily at the current pace, the broader US Dollar has gained about 0.75% as measured by the DXY Index.
The rebound attempt staged by USD price action largely corresponds with a return of demand for safe-haven currencies and other anti-risk assets like US Treasuries. This seems to follow the sharp selloff staged by major stock market indices like the S&P 500, Dow Jones, Nasdaq and Russell 2000 as trader sentiment deteriorates sharply since the Fed meeting.
| Change in | Longs | Shorts | OI |
| Daily | 4% | -3% | 1% |
| Weekly | 41% | -22% | 0% |
US DOLLAR, VIX INDEX, S&P 500 PRICE CHART: 5-MINUTE TIME FRAME (11 JUNE 2020 INTRADAY)
Chart created by @RichDvorakFX with TradingView
Perhaps a not-so optimistic tone from Fed Chair Powell regarding the potential long-term structural damage done to the jobs market could serve as one fundamental driver for fading risk appetite. This was reiterated by continuing jobless claims data released this morning, which detailed more than 20-million Americans filing for unemployment insurance for the sixth consecutive week, and counters the VIX implosion post-Jobs report last Friday. Similarly, the lack of another extensive liquidity package could have underwhelmed investors who seem increasingly reliant on Fed balance sheet growth to propel stocks higher.
Although dovish FOMC action and outlook typically present fundamental headwinds for the US Dollar, a return of bearish market sentiment could strongarm USD price action higher thanks to the Greenback’s premier safe-haven status. Another fundamental theme possibly contributing to the return of US Dollar demand might include dissipating coronavirus optimism as the number of COVID-19 cases continue climbing.
US DOLLAR INDEX & SPOT AUD/USD PRICE CHART OVERLAID: 4-HOUR TIME FRAME (24 MAR TO 11 JUN 2020)
Chart created by @RichDvorakFX with TradingView
Looking ahead to Friday’s trading session, spot AUD/USD price action could set the tone as APAC comes online and provides confirmation or nullification of the latest breakdown in risk appetite. In turn, this might serve as bellwether as to where the broader US Dollar heads next. Also noteworthy, US consumer sentiment data is due Friday, June 12 at 14:00 GMT and could provide another fundamental driver with potential to weigh on appetite for risk and the direction of the US Dollar.
-- Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
