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
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.
| Change in | Longs | Shorts | OI |
| Daily | 3% | 8% | 4% |
| Weekly | -6% | 4% | -4% |
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)
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.
USD PRICE OUTLOOK: US DOLLAR IMPLIED VOLATILITY TRADING RANGES (OVERNIGHT)
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%.
-- Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
