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USD Price Outlook: US Dollar & VIX Advance Following the Fed

USD Price Outlook: US Dollar & VIX Advance Following the Fed

2020-09-16 20:00:00
Rich Dvorak, Analyst
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US DOLLAR FORECAST: USD PRICE ACTION STRENGTHENS, VIX INDEX CLIMBS POST-FED DECISION & POWELL PRESSER

  • US Dollar gains ground following the latest FOMC decision and Fed Chair Powell presser
  • S&P 500 VIX Index edges higher as risk aversion takes hold and sends stocks sliding lower
  • GBP/USD price action gives back gains while the Aussie-Dollar drops into negative territory

The US Dollar looks to finish Wednesday’s trading session higher in the wake of the September 2020 FOMC decision. USD price action has been on a roller-coaster ride over the last 24-hours with the Greenback gyrating and causing major currency pairs to whipsaw. The US Dollar strengthened broadly at the Asia session open but quickly surrendered those gains trading progressed. As the scheduled Fed announcement approached, however, the DXY Index based around the 92.80-price level.

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US DOLLAR PRICE CHART & VIX INDEX OVERLAID: 5-MINUTE TIME FRAME (16 SEP 2020 INTRADAY)

US Dollar Index Price Chart VIX Reaction to September 2020 FOMC Statement

Chart created by @RichDvorakFX with TradingView

This area of technical support was highlighted in our Fed meeting preview published yesterday. We also noted potential for the US Dollar to track the direction of the VIX Index, or fear-gauge, as market participants digested latest commentary from the Federal Reserve. Perhaps upgraded economic projections for US GDP, unemployment, and inflation provided by FOMC officials helped boost the Dollar relative to other FX peers.

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Commentary from Fed Chair Powell during the follow-up press conference may have exacerbated the bid underpinning USD price action into the close. The chairman noted that while economic activity has picked up in recent months, improvement across high-frequency indicators have softened. For instance, Powell stated how some measures of consumer spending and job growth have slowed since mid-June.

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The Federal Reserve likely disappointed dovish expectations with remarks emphasizing the central bank is ‘closely monitoring the situation’ rather than doing more now. Fed Chair Powell also shied away from more monetary support at this time as fiscal policy efforts likely stands to better help the economy return to levels prevailing before the pandemic hit. Nevertheless, the Fed conveyed its intent to continue the pace of asset purchases at least at the current pace.

GBP/USD PRICE CHART: 1-HOUR TIME FRAME (09 SEP TO 16 SEP 2020)

GBP USD Price Chart Pound to US Dollar Forecast

GBP/USD is still in positive territory on the day, but the cable has been snapping sharply lower, down about 43-pips, after a rejection at the 1.3000-price level. The Pound-Dollar has potential to continue its decline from intraday highs and perhaps approach trend support near the 1.2900-handle. Breaching this technical support zone could open up the door for a retest of month-to-date lows amid building Brexit uncertainty.

GBP/USD MIXED
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 3% -5% -3%
Weekly -8% 12% 4%
What does it mean for price action?
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AUD/USD PRICE CHART: DAILY TIME FRAME (27 MAY TO 16 SEP 2020)

AUD USD Price Chart Aussie to US Dollar Forecast

AUD/USD price action also gravitated lower from session highs on the back of the September Fed statement and press conference held by Chair Powell. The pro-risk Aussie likely succumbed to selling pressure against its US Dollar counterpart as market sentiment deteriorated and caused an increase in demand for safe-haven currencies, like the USD. Spot AUD/USD prices could edge back toward the 0.7200-handle, which is roughly underscored by its 50-day moving average, if risk aversion is sustained and expected volatility continues to increase.

-- 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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