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US Dollar Outlook: DXY & VIX Index Drilled, Stimulus Incoming

US Dollar Outlook: DXY & VIX Index Drilled, Stimulus Incoming

Rich Dvorak, Analyst

US DOLLAR OUTLOOK: DXY INDEX HAMMERED LOWER WITH VIX ‘FEAR-GAUGE’ AS BIDEN SIGNS COVID STIMULUS BILL

  • US Dollar was pummeled lower on Thursday as bears push against the recent rebound
  • DXY Index drops to prior resistance-turned-support while Treasury yields peel back
  • S&P 500-derived VIX ‘fear-gauge’ is swooning with stimulus check euphoria in focus
  • Sharpen your technical analysis skills or learn about implied volatility trading strategies!
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The US Dollar is clearly back on defense considering the DXY Index has been drilled lower for its third consecutive session. US Dollar downside was broad based during Thursday trade with weakness shown across practically all major currency pairs. EUR/USD gained over 50-pips along with GBP/USD and AUD/USD while USD/CAD plummeted 85-pips toward year-to-date lows. Selling pressure across USD price action seems to follow simmering bond market volatility and improving risk appetite. Not to mention, the VIX Index just cratered to a two-week low with covid stimulus checks ready to be dished out as early as this weekend.

DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (23 OCT 2020 TO 11 MAR 2021)

US Dollar Index Price Chart DXY Technical Forecast

Chart by @RichDvorakFX created using TradingView

The broader DXY Index has gravitated lower correspondingly and now hovers around a confluence of technical support formed from prior resistance. This zone of resistance-turned-support is highlighted by the 91.00-handle as well as its 04 February swing high and 8-day simple moving average. US Dollar weakness has also coincided with the relative strength index recoiling lower after probing ‘overbought’ territory.

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US Dollar bears appear to be wrestling back control and might have their eyes set on the 20-day and 50-day simple moving averages. Breaching this next possible layer of defense could open up the door for a deeper reversal toward the 89.50-price level. On the contrary, if there is another flareup in risk aversion or sharp rise in Treasury yields, US Dollar bulls could look to take over the steering wheel and have another look at the 61.8% Fibonacci retracement level shown on the chart above.

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

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

Currency volatility has cooled off considerable. This comes as little surprise, however, judging by the relatively lower readings of volatility across bonds and equities over recent sessions. Furthermore, EUR/USD price volatility is expected to wane in the wake of this morning’s ECB announcement. USD/CAD could be one of the more active majors looking ahead to Friday’s trading session due to event risk posed by the upcoming release of monthly Canadian jobs data, which is scheduled to cross market wires at 13:30 GMT.

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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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