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US Dollar Outlook: USD Price Action Eyes Biden Stimulus Proposal

US Dollar Outlook: USD Price Action Eyes Biden Stimulus Proposal

Rich Dvorak, Analyst

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USD PRICE OUTLOOK: US DOLLAR ADVANCES DESPITE SLIPPING TREASURY YIELDS, BIDEN SET TO UNVEIL STIMULUS PACKAGE

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The US Dollar notched a modest 0.3% gain on Wednesday as measured by the broader DXY Index. The advance came despite another decline in yields corresponding with strong demand for long-dated Treasuries. US Dollar strength was seen primarily against the Euro as a flareup in Italian political risk steered EUR/USD price action 65-pips lower on the session.

DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (21 OCT 2020 TO 13 JAN 2021)

DXY Index Price Chart US Dollar Technical Forecast

Chart by @RichDvorakFX created using TradingView

The broader US Dollar rebound paused yesterday, but the DXY Index seems to have found technical support from its 20-day simple moving average near the 90.00-handle. Breaching this area of buoyancy could open up the door for US Dollar bears to push the Greenback toward year-to-date lows. Resistance still looks underpinned by the upper Bollinger Band as well as the 38.2% Fibonacci retracement level of the 02 November to 06 January trading range.

Eclipsing these technical obstacles could motivate US Dollar bulls to set their sights on the 100-day simple moving average. The MACD indicator suggests that upward momentum may be accelerating. That said, it may be difficult for the broader US Dollar to sustain its rebound without Treasury yields rising further in the absence of demand for safe-haven currencies.

US DOLLAR IMPLIED VOLATILITY TRADING RANGES (OVERNIGHT)

USD Price Chart Outlook US Dollar Implied Volatility Trading Ranges EURUSD

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Looking ahead to Thursday’s trading session, president-elect Joe Biden is set to unveil details on his fiscal stimulus plans, which could weigh on USD price action. Biden is expected to announce a stimulus package proposal with a ‘high price tag’ rumored to be around $1.3-trillion. Seeing that Biden is likely to find enough support for his plans from congress set to be controlled by democrats, the bigger the stimulus plan the more likely Treasury yields might extend higher. In turn, and considering recent market movements, this could help bolster the US Dollar.

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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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