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US Dollar Outlook: EUR/USD Volatility Looks to Inflation Data Due

US Dollar Outlook: EUR/USD Volatility Looks to Inflation Data Due

Rich Dvorak, Analyst

EUR/USD PRICE OUTLOOK: US DOLLAR EYES MONTHLY CPI REPORT, BOND YIELDS

  • US Dollar surrendered some of its recent gains against key FX peers during Tuesday trade
  • DXY Index ran into resistance around the 92.00-handle and 61.8% Fibonacci retracement
  • EUR/USD price volatility might accelerate with Treasury yields owing to inflation data due
  • Sharpen your technical analysis skills or learn about implied volatility trading strategies!
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The US Dollar stumbled lower on Tuesday and ended its four-day streak of gains. US Dollar weakness was felt across the board of major currency pairs and looked primarily driven by a modest pullback in Treasury yields. On balance, the broader DXY Index slipped nearly -0.4% with EUR/USD and GBP/USD popping 53-pips and 65-pips, respectively.

DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (23 OCT 2020 TO 09 MAR 2021)

DXY Index US Dollar Price Chart Forecast

Chart by @RichDvorakFX created using TradingView

US Dollar bears appear to be pushing back with the DXY Index probing its 61.8% Fibonacci retracement level highlighted on the chart above. The broader US Dollar also seems to be facing headwinds as the relative strength index pivots lower from ‘overbought’ territory and the MACD indicator points to waning bullish momentum. This all pushed the DXY Index back within the confines of its upper Bollinger Band.

That said, the latest move by the US Dollar looks more like a mere pause of its broader rebound attempt. Reclaiming the 92.00-price level could motivate another test of the 61.8% Fib before the 200-day simple moving average drifts into focus. On the other hand, if US Dollar bears continue to stand their ground as the week progresses, we could gravitate toward prior resistance-turned-support near the 04 February swing high.

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

USD Price Chart Outlook US Dollar Implied Volatility Trading Ranges EURUSD USDCAD

USD price action is expected to keep heating up judging by the latest overnight implied volatility readings for select US Dollar FX pairs. This brings to focus potentially high-impact event risk posed by the upcoming release of monthly US inflation data, which is slated to cross market wires 10 March at 13:30 GMT.

To that end, a hotter-than-expected CPI print could spark another upswing in bond yields and the US Dollar. Not to mention, results of the 10-year Treasury auction expected Wednesday at 18:00 GMT also has potential to weigh materially on the direction of yields and the US Dollar. USD/CAD volatility could be worth keeping on the radar throughout Wednesday’s trading session as well in light of the scheduled Bank of Canada interest rate decision.

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-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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