US DOLLAR OUTLOOK: EUR/USD STRENGTHENS AHEAD OF ECB RATE DECISION, AUD/USD REBOUNDS AS VOLATILITY SIMMERS
- US Dollar drifts lower on Wednesday after gaining ground over the last six sessions
- EUR/USD price action edges higher as traders position for the upcoming ECB decision
- AUD/USD rebounding off the 0.7200-price level while the S&P 500 VIX Index peels back
The US Dollar traded on its back foot during Wednesday’s session and marks the first down day for the DXY Index so far this month. US Dollar bulls took a breather and sent USD price action drifting lower as market sentiment improved following the recent stumble in major stock indices. The US Dollar tends to rise during episodes of risk aversion seeing that the world reserve currency is generally viewed as a top safe-haven asset.
DXY INDEX - US DOLLAR PRICE CHART: DAILY TIME FRAME (03 MAR TO 09 SEP 2020)
Chart created by @RichDvorakFX with TradingView
Correspondingly, the noticeable recovery in trader risk appetite today likely weighed negatively on the broader US Dollar. The rebound staged by the US Dollar Index over recent trading sessions also could struggle to gain traction. This is considering technical resistance posed by the 94.00-price level, in addition to the medium-term bearish trend, which both threaten to undermine attempts by the Greenback to rally off two-year lows.
EUR/USD PRICE CHART: DAILY TIME FRAME (28 APR TO 09 SEP 2020)
EUR/USD price action jumped higher on Wednesday and largely contributed to broader US Dollar weakness. EUR/USD bulls took a stand as the Euro probed its 50-day moving average ahead of the ECB rate decision due Thursday, 10 September at 12:45 GMT. Also, it is likely that the Euro climbed against its US Dollar peer on the back of reports that ECB officials have a rosier economic outlook for the EU economy, which may have fueled speculation that there might be a reduced need for more monetary stimulus later this year.
AUD/USD PRICE CHART WITH VIX INDEX OVERLAID: DAILY TIME FRAME (DEC 2019 TO SEP 2020)
Chart created by @RichDvorakFX with TradingView
AUD/USD price action also recoiled as the pro-risk Australian Dollar bounced back against its US Dollar counterpart while market volatility subsided. This is reflected by a retracement lower in the VIX Index, or fear-gauge, which generally maintains an inverse relationship with spot AUD/USD. Another influx of risk aversion could send AUD/USD snapping back lower, but the Aussie might prolong its rebound if the VIX extends its decline.
| Change in | Longs | Shorts | OI |
| Daily | -11% | 4% | -7% |
| Weekly | -13% | 11% | -6% |
-- Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
