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USD Price Outlook: US Dollar Implied Volatility Trading Ranges

USD Price Outlook: US Dollar Implied Volatility Trading Ranges

Rich Dvorak, Analyst

US DOLLAR OUTLOOK: USD PRICE ACTION HEATING UP, HIGH-IMPACT EVENT RISK LOOMS

  • USD price action was a mixed bag during Monday’s trading session
  • DXY Index edged modestly higher to start the week as GBP/USD plunged
  • US Dollar volatility looks likely to accelerate amid high-impact event risk

The US Dollar traded mixed against its major FX peers on Monday. A sharp slide by GBP/USD helped offset US Dollar downside against the Euro and steered the broad-based DXY Index marginally higher on balance. Nevertheless, following a considerable stretch of US Dollar weakness, the basket of major currency pairs still fluctuates around two-year lows. Sustained selling pressure across USD price action has coincided with the VIX falling to its lowest level since the coronavirus pandemic first roiled markets earlier this year.

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DXY - US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (26 AUG TO 07 DEC 2020)

DXY Index Price Chart US Dollar Technical Forecast

Chart by @RichDvorakFX created using TradingView

That said, the confluence of high-impact event risk outlined on the DailyFX Economic Calendar might weigh materially on USD price action throughout the week. Potential for an acceleration in US Dollar volatility is suggested by the latest one-week implied volatility readings. Also, realized US Dollar volatility has spiked higher over recent trading sessions as indicated by the Bollinger Band expansion.

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This could facilitate further downside potential as the bearish US Dollar trend persists. Conversely, in the event of a mean-reversion back higher, the DXY Index could face technical resistance near the 92.00-price level, which is roughly underpinned by the 20-day simple moving average and 38.2% Fibonacci retracement of its latest leg lower.

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

USD price outlook US Dollar implied volatility trading ranges EURUSD GBPUSD USDCAD

Learn More - What is Implied Volatility & Why Should Traders Care?

At any rate, EUR/USD and GBP/USD will likely be center stage this week in light of the ECB meeting and intensifying Brexit negotiations. Similarly, USD/CAD could also come into focus considering a BOC rate decision is due as well. The Euro and British Pound comprise 57.6% and 11.9% of the US Dollar Index respectively while the Canadian Dollar holds a 9.1% weight. GBP/USD is expected to be the most active US Dollar pair according to its one-week implied volatility reading of 16.0%. EUR/USD one-week implied volatility was just clocked at 8.2% and compares to its 20-day average reading of 6.4%.

-- 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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