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USD Price Outlook: US Dollar Volatility Ramps into Election Day

USD Price Outlook: US Dollar Volatility Ramps into Election Day

2020-11-03 16:30:00
Rich Dvorak, Analyst
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USD PRICE OUTLOOK: US DOLLAR NOSEDIVES WITH NOVEMBER 2020 ELECTION UNDERWAY

  • USD price action weakens considerably as Americans head to the polls for 2020 election day
  • US Dollar overnight implied volatility readings explode in anticipation of potentially big moves
  • DXY Index has plunged over 0.8% intraday as traders position for possible election outcomes
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The US Dollar is getting hammered lower against key FX peers as the November 2020 election gets underway. US Dollar weakness could be due to trader speculation front-running a potential Biden victory and democratic sweep, which would likely correspond with massive fiscal spending.

DXY INDEX - US DOLLAR PRICE CHART: DAILY TIME FRAME (20 MAY TO 03 NOV 2020)

DXY Index US Dollar Price Chart Forecast Election 2020

Chart by @RichDvorakFX created using TradingView

From a technical perspective, the US Dollar Index stumbled sharply lower after rejecting the 94.00-handle and 100-day simple moving average. The move lower looks fueled by broad-based US Dollar selling pressure across major currency pairs with USD price action weakening most notably against AUD, GBP, EUR, and CAD. US Dollar bulls now look toward the positively-sloped 50-day simple moving average as a potential area to stem the bleeding, which also appears to align with a back-test of the recent bull flag breakout.

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

USD Price Chart Outlook US Dollar Implied Volatility Trading Ranges November 2020 Election

US Dollar volatility is expected to be exceptionally high over the next 24-hours according to the latest overnight implied volatility readings. The same is true for one-week implied volatility readings. That said, pricing in a Biden victory could be premature as political polls have been proven wrong before. Also, volatility might linger beyond the official 03 November 2020 election day considering the potential for a contested election as mail-in ballots are tallied. If this threat materializes, or markets are caught offsides, the US Dollar could stage a face-ripping rebound.

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Not to mention, the scheduled FOMC decision and release of NFP data later this week pose additional heavy-hitting event risk. This underscores the importance of adopting a comprehensive trading strategy that incorporates sound risk management techniques and a well thought out plan. Options-implied trading ranges are calculated using 1-standard deviation (i.e. 68% statistical probability price action is contained within the implied trading range over the specified time frame).

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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