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US Dollar Outlook: PMI Data to Fan Stimulus-Driven Volatility

US Dollar Outlook: PMI Data to Fan Stimulus-Driven Volatility

2020-10-22 17:15:00
Rich Dvorak, Analyst
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USD PRICE OUTLOOK: US DOLLAR SELLOFF SUBSIDES AS STIMULUS OPTIMISM SPUTTERS AHEAD OF GLOBAL PMI DATA DUE

  • US Dollar volatility remains heightened in the midst of back-and-forth stimulus negotiations
  • DXY Index selloff stabilizes as doubts surrounding another coronavirus aid package resurface
  • EUR/USD price action looks vulnerable to potentially disappointing global PMI data on deck
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The broader US Dollar looks like it is attempting to stabilize and turn higher on Thursday following a sharp slide over the last few trading sessions. Breaching the 50-day simple moving average and neckline of the head and shoulder pattern sent the DXY Index spiraling lower to the 92.50-price level. In an effort to stymie recent downside, US Dollar bulls seem to be staging a relief bounce off the lower Bollinger Band.

DXY INDEX - US DOLLAR PRICE CHART: DAILY TIME FRAME (15 JUL TO 22 OCT 2020)

DXY Index Price Chart US Dollar Technical Outlook

Chart by @RichDvorakFX created using TradingView

The US Dollar is likely trying to edge higher on the back of simmering optimism for another coronavirus aid package before the November 2020 election. Better-than-expected US economic data released this morning, such as jobless claims and existing home sales, could be downplaying the sense of urgency to deliver a stimulus deal as politicians remain at odds over how much fiscal aid to provide and how exactly to spend it. Nevertheless, the current state of fiscal stimulus negotiations stands to continue strong-arming the direction of USD price action and the broader US Dollar.

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Headlines pointing to further progress toward reaching a stimulus deal would likely recharge the US Dollar selloff whereas a breakdown in negotiations has potential to send the Greenback snapping higher. That said, the upcoming release of global PMI data has potential to exacerbate recent US Dollar volatility. Mounting new virus cases and restrictions on business activity across Europe and the UK could show up in the monthly PMI reports on tap for release this Friday, 23 October.

EUR/USD BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 18% -3% 3%
Weekly 11% -8% -3%
What does it mean for price action?
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The leading economic reports thus have potential to echo changes in growth trajectories for the United States and other advanced economies, which could exacerbate US Dollar volatility in turn. Disappointing PMI data might encourage risk aversion and facilitate demand for top safe-haven currencies like the US Dollar. Conversely, PMI data that crosses market wires roughly in line with expectations could motivate the resumption of broader US Dollar weakness with FX traders still anticipating another comprehensive stimulus deal.

Keep Reading: US Dollar (USD) Presidential Election Performance May Prove Anything but Typical

-- 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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