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USD Price Outlook: US Dollar Braces for Fed Decision, PMI Data

USD Price Outlook: US Dollar Braces for Fed Decision, PMI Data

Rich Dvorak, Analyst

US DOLLAR OUTLOOK: USD PRICE ACTION PRIMED FOR VOLATILITY AS MARKETS AWAIT FOMC PROJECTIONS & GLOBAL PMI DATA

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The US Dollar declined against all G10 currencies throughout Tuesday’s trading session. Broad-based US Dollar selling pressure pushed the DXY Index back toward its lowest level in two-years. The resurgence of USD weakness, which follows a feeble effort to form support over the last week, likely comes in response to reports that US politicians have made progress on reaching a deal for the fiscal stimulus deal and omnibus spending package. Broader US Dollar downside was likely exacerbated by GBP/USD price action advancing sharply on the back of building Brexit deal speculation.

GBP/USD BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 22% 17% 19%
Weekly 35% -34% -12%
What does it mean for price action?
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DXY - US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (24 AUG TO 15 DEC 2020)

DXY Index Price Chart US Dollar Technical Outlook

Chart by @RichDvorakFX created using TradingView

This is considering the Pound-Dollar maintains a notable 11.9% weighting of the DXY Index composition. Turning to the charts, we can see that US Dollar bears continue to assert their dominance as short-term relief bounces fail to overcome the downward-sloping 9-day simple moving average. Maintaining altitude around the current price level looks like mission critical for US Dollar bulls with technical support sparse beyond the 04 December intraday low. That said, given their generally strong positive correlation, the direction of the S&P 500-derived VIX Index might serve as a potential bellwether as to where the broader US Dollar heads next.

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

USD price chart outlook us dollar implied volatility trading ranges gbpusd brexit stimulus fed decision

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

Shifting focus to US Dollar implied volatility readings highlights trader expectations for a material acceleration in USD price action. Overnight US Dollar implied volatility measures are running red-hot with GBP/USD and USD/MXN anticipated to be the most active pairs. Aside from Brexit developments and US stimulus negotiations, a plethora of high-impact event risk scheduled on the economic calendar have potential to strongarm the US Dollar. The release of monthly PMI data, as well as the Fed interest rate decision plus updated economic projections, stand out as most prominent catalysts for US Dollar volatility.

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-- 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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