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USD Price Outlook: Pound-Dollar Recoils Lower, Will it Last?

USD Price Outlook: Pound-Dollar Recoils Lower, Will it Last?

Rich Dvorak, Analyst

US DOLLAR OUTLOOK: USD PRICE ACTION MIXED AS VOLATILITY CURTAILS

  • USD price action was a mixed bag for most of Monday’s trading session
  • US Dollar advanced on balance largely owing to Pound Sterling weakness
  • Implied volatility readings have cooled off across the major currency pairs
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The US Dollar traded mixed on Monday. US Dollar strength stemmed primarily from a 110-pip pullback by GDP/USD price action, but this was offset due to a 27-pip advance by EUR/USD. On balance, the broad-based DXY Index gained 0.1% and reclaimed its short-term 8-day simple moving average.

GBP/USD MIXED
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -5% -4% -4%
Weekly 23% -25% -7%
What does it mean for price action?
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DXY - US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (13 AUG TO 28 DEC 2020)

US Dollar Index Price Chart

Chart by @RichDvorakFX created using TradingView

Positive divergence highlighted by the MACD indicator likely serves as a constructive technical development for US Dollar bulls. This follows the DXY Index recoiling higher off its lower Bollinger Band mid-December. The Bollinger Band width is shrinking, however, and might suggest that recent activity is a mere consolidation within the broader bearish trend underpinned by the 20-day simple moving average.

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

USD Price Chart US Dollar Implied Volatility Trading Ranges EURUSD GBPUSD

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Also, it is worth noting how year-end rebalancing and muted liquidity due to the holidays could be distorting recent USD price action. FX movements are expected to remain relatively tame judging by the latest overnight US Dollar implied volatility readings. These measurements have largely started cooling off with key fundamental catalysts like Brexit and fiscal aid talks drifting into the rearview mirror.

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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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