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USD Price Outlook: US Dollar Free Fall Reignited by Dovish Fed

USD Price Outlook: US Dollar Free Fall Reignited by Dovish Fed

Rich Dvorak, Analyst

US DOLLAR OUTLOOK: USD PRICE ACTION RESUMES SHARP SELLOFF AS FED ECHOES DOVISH POLICY

  • US Dollar swooned throughout Thursday’s trading session as sellers flexed their muscles
  • USD price action under pressure with the Federal Reserve underscoring its dovish stance
  • The DXY Index extended its sharp slide to 32-month lows amid broad US Dollar weakness
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The US Dollar continued its precipitous decline on Thursday. USD price action weakened across all major currency pairs and drove the broad-based US Dollar Index 0.75% lower for the session. It appears that US Dollar selling pressure has been recharged by Fed bond buying plans detailed yesterday. Prevailing risk trends fueled by Brexit deal speculation, vaccine optimism and fiscal stimulus negotiations likely contributed to US Dollar downside as well.

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DXY INDEX - US DOLLAR PRICE CHART: WEEKLY TIME FRAME (SEP 2019 TO DEC 2020)

DXY Index Price Chart US Dollar Forecast

Chart by @RichDvorakFX created using TradingView

The DXY Index now trades beneath the psychologically-significant 90.00-price level and looks primed to extend its decline toward 2018 lows. Though the US Dollar is starting to seem oversold, a Bollinger Band expansion could facilitate further weakness as bearish momentum accelerates and propels the Greenback lower. After all, it is prudent for traders to keep in mind that the trend is your friend more often than not.

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

USD Price Chart Outlook US Dollar Implied Volatility Trading Ranges GBPUSD

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

US Dollar implied volatility readings have cooled with event risk scheduled for this week now in the rearview mirror. With Brexit trade talks still ongoing, however, spot GBP/USD price action could ‘lead the way’ as to where the broader US Dollar heads next. This is considering how GBP/USD performance is the third largest component of the US Dollar Index. Also, as one might expect given the uncertainty surrounding potential for a no-deal Brexit, the cable is still expected to be the most active major US Dollar currency pair headed into Friday’s trading session with an overnight implied volatility reading of 11.8%.

GBP/USD BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 2% -12% -5%
Weekly 11% -12% -1%
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That said, Brexit commentary crossing the wires late Thursday conveyed a sour tone with European Council President Ursula von der Leyen stating how "big differences remain to be bridged, in particular on fisheries." UK Prime Minister Boris Johnson said how Brexit trade talks with the EU are in a 'serious situation with time running short,' adding how it now looks 'very likely' that an agreement would not be reached unless the EU position 'changed substantially.'

-- 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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