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USD Price Outlook: US Dollar Volatility to Take Cue from EUR & GBP

USD Price Outlook: US Dollar Volatility to Take Cue from EUR & GBP

Rich Dvorak, Analyst

US DOLLAR OUTLOOK: EUR/USD & GBP/USD PRICE ACTION IN FOCUS AMID ECB MEETING & BREXIT TRADE TALKS

  • The US Dollar traded mixed on Wednesday and left the DXY Index virtually flat for the session
  • USD price action has attempted to rebound higher after a sharp stumble to start the month
  • EUR/USD and GBP/USD could fuel US Dollar volatility owing to ECB and Brexit event risk
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US Dollar bears appear to have been kept at bay over the last few trading sessions as USD price action extends its rebound attempt following the steep slide to start the month. This has helped fuel a modest relief bounce by the broad-based DXY Index and unwind of its seemingly overextended move lower.

Looking closer at performance across major currency pairs for Wednesday, however, reveals the US Dollar was a mixed bag. USD price action gained ground relative to the Euro, Yen and Canadian Dollar, but retreated against the Pound Sterling.

EUR/USD BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 23% 14% 18%
Weekly 8% -24% -11%
What does it mean for price action?
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US DOLLAR INDEX WITH EUR/USD & GBP/USD OVERLAID: DAILY TIME FRAME (24 AUG TO 09 DEC 2020)

US Dollar Index Price Chart with EURUSD and GBPUSD Overlaid

Chart by @RichDvorakFX created using TradingView

That said, focus for the remainder of the week will likely be placed on the direction of EUR/USD and GBP/USD amid heightened event risk. The upcoming ECB rate decision due on Thursday, 10 December at 12:45 GMT, in addition to the latest Brexit headlines expected to cross market wires, stand to strongarm the direction of the broader US Dollar indirectly. This is seeing that the DXY Index has a 57.6% weight to EUR/USD and 11.9% weight to GBP/USD.

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

USD Price Chart US Dollar Implied Volatility Trading Ranges EURUSD GBPUSD

Learn More - What is Implied Volatility & Why Should Traders Care?

High-impact event risk posed by the ECB meeting and Brexit trade talks have catalyzed a spike in overnight implied volatility readings for EUR/USD and GBP/USD. With the ECB anticipated to recalibrate its quantitative easing programs, and UK-EU negotiators still stuck at an impasse over a Brexit trade deal, the red-hot implied volatility figures come as little surprise. This could warrant greater adherence to sound risk management techniques until the dust settles and more clarity is provided on where USD price action might trend next. 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).

GBP/USD BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 13% 12% 13%
Weekly 31% -35% -13%
What does it mean for price action?
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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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