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King Dollar Dethroned as EUR/USD Surges, DXY Hits 2-Year Low

King Dollar Dethroned as EUR/USD Surges, DXY Hits 2-Year Low

Rich Dvorak, Analyst

US DOLLAR, EUR/USD, DXY INDEX – TALKING POINTS:

  • US Dollar downside has accelerated over recent trading sessions
  • DXY Index probed 25-month lows earlier today as selling persists
  • EUR/USD price action stands out as a primary driver of Dollar weakness

US Dollar bears have pummeled the Greenback to its weakest level since June 2018 measured by the DXY Index. On balance, the broader US Dollar now rests about 3.5% lower year-to-date. This follows a nasty reversal from being up around 6.0% at the March swing high. USD selling pressure over recent months looks largely owed to vanishing demand for safe-haven currencies and diverging trajectories for economic growth.

DXY INDEX & EUR/USD PRICE CHART: WEEKLY TIME FRAME (DEC 2017 TO JUL 2020)

US Dollar DXY Index Price Chart EURUSD

Chart created by @RichDvorakFX with TradingView

Sharp declines recently recorded by the DXY Index seems fueled by EUR/USD performance in particular, though US Dollar weakness does appear far-felt across the board judging by the direction of major currency pairs. Spot EUR/USD price action – the largest component of the US Dollar Index by far with a 57.6% weighting – has been on an absolute tear since mid-May after a historic joint stimulus proposal gave the EU hope.

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

USD Price Chart US Dollar Outlook Implied Volatity Trading Ranges

Corresponding with the stretch of US Dollar downside, which again looks exacerbated by inflows into the Eurozone, the USD could be poised to surrender its ‘King Dollar’ title, particularly if the standing bearish trend keeps steering the DXY Index lower.

That said, measures of expected currency volatility across key US Dollar FX pairs have ticked higher. A rise in implied volatility typically indicates that traders have grown relatively more uncertain, which tends to weigh negatively on appetite for risk, and provide a positive tailwind to safe-havens like the US Dollar.

Perhaps this week’s economic calendar, jam-packed with high-profile equity earnings, GDP reports, a FOMC decision, and latest round of congressional stimulus bill talks just to name a few potentially market-moving events, may provide a catalyst with enough credence to prompt risk-aversion and potentially stymie the Greenback’s slide.

Keep Reading – EUR/USD Extends Rally & USD/JPY Plunges on Markit PMIs

-- Written by Rich Dvorak, 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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