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US Dollar Price Outlook: Inflation Data to Fuel USD Volatility

US Dollar Price Outlook: Inflation Data to Fuel USD Volatility

Rich Dvorak, Analyst

US DOLLAR OUTLOOK: USD PRICE ACTION TO HEAT UP WITH INFLATION DATA DUE

The US Dollar will likely be front and center during Wednesday’s trading session. This is considering potential for US Dollar volatility to accelerate in response to monthly inflation data on deck for release. The DailyFX Economic Calendar details that markets are expecting headline and core inflation to cross the wires at 3.6% and 2.3%, respectively. A material upside surprise on inflation could intensify the Fed taper debate, which would likely correspond a sharp move higher in Treasury yields and the broader US Dollar. On the other hand, a relatively soft or in-line reading on inflation might be viewed as a disappointment and cause traders to unwind bets for a less-dovish FOMC.

DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (24 DEC 2020 TO 11 MAY 2021)

DXY Index Price Chart US Dollar Forecast

Chart by @RichDvorakFX created using TradingView

Taking a look at a daily chart of the DXY Index, we see that the US Dollar has weakened considerably over recent trading sessions. This has pushed the DXY Index down to its lowest level in 11-weeks near the 90.15-price level. US Dollar bulls seem to have stemmed the bleed here, which is an area of confluent support underpinned by the 78.6% Fibonacci retracement of the DXY’s year-to-date trading range. A resumption of US Dollar selling pressure could tee up a look at the 25 February swing low before early January lows are eyed. If a rebound starts to materialize, however, the US Dollar could see a rally toward its 100-day simple moving average.

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

USD Price Chart US Dollar Implied Volatility Trading Ranges AUDUSD USDJPY

AUD/USD price action is expected to be the most active on Wednesday across the board of key US Dollar currency pairs. This is judging by AUD/USD overnight implied volatility of 12.2%, which compares to its 20-day average of 8.5% and ranks in the top 82nd percentile of readings taken over the last 12-months. USD/JPY price action might also be worth keeping on the radar seeing that the Dollar-Yen is particularly sensitive to changes in interest rates and inflation expectations.

-- 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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