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USD Price Outlook: US Dollar Flops as Stimulus Deal Fuels Bears

USD Price Outlook: US Dollar Flops as Stimulus Deal Fuels Bears

Rich Dvorak, Analyst

US DOLLAR OUTLOOK: USD PRICE ACTION WHIPSAWS LOWER FUELED BY $900-BILLION COVID AID PACKAGE

  • USD price action erased gains to finish flat on the session as selling pressure persevered
  • Mounting coronavirus concerns roiled markets and initially sent the DXY Index higher
  • US Dollar weakness and risk appetite returned with movement on stimulus, Brexit
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The US Dollar recoiled lower and wiped out all of its gains on Monday after surging 1% at the start of the trading session. USD price action strengthened initially on the back of growing coronavirus concerns as lockdowns mount and evidence of a new variant roils market sentiment. A sharp advance by the broad-based DXY Index was likely exacerbated by Pound-Dollar weakness. US Dollar bears stood their ground, however, as trader risk appetite recovered throughout the trading session.

GBP/USD Bullish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 3% 36% 11%
Weekly -10% 41% 0%
What does it mean for price action?
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The intraday reversal looked fueled by markets remaining optimistic on the vaccine rollout, combined with news that Congress is finally set to vote on a $900-billion coronavirus aid package this evening after months of negotiations. Also, spot GBP/USD price action, which is the third largest component of the DXY Index, retraced almost all of its 300-pip slide on word that UK Prime Minister Boris Johnson intends on making a last-ditch push for a Brexit deal with compromise on fisheries.

DXY - US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (24 AUG TO 21 DEC 2020)

DXY Index Price Chart US Dollar Technical Outlook

Chart by @RichDvorakFX created using TradingView

Turning to the charts, the short-lived rally staged by the US Dollar Index fizzled out with a rejection of its 20-day simple moving average and month-to-date highs. The Greenback also failed to close above its short-term 8-day simple moving average as bears look to retain control. This follows the Fed reigniting the US Dollar free fall last week. That said, if the S&P 500-derived VIX Index continues to climb as market sentiment deteriorates, the safe-haven US Dollar could stay in demand more broadly.

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

USD Price Chart US Dollar Implied Volatility Trading Ranges

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

As one might expect, US Dollar implied volatility readings have accelerated owing to the notable intraday swings across USD price action. GBP/USD is expected to be the most volatile major currency pair with an overnight implied volatility of 19.7%.

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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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