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US Dollar Price Volatility Report: Fed to Follow ECB Footsteps

US Dollar Price Volatility Report: Fed to Follow ECB Footsteps

2019-09-11 21:40:00
Rich Dvorak, Junior Analyst
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US DOLLAR CURRENCY VOLATILITY PUSHES HIGHER AS CENTRAL BANK DECISIONS LOOM

  • USD price action stands to be driven predominantly by the ECB meeting on deck and less by factors specific to the US Dollar with the Fed sidelined until next week
  • US Dollar implied volatility continues to climb, owing largely to monetary policy uncertainty, which stands to roil markets as traders await the latest central bank decisions
  • Read more on the outsized global influence of Fed & ECB Monetary Policy Shifts

The US Dollar jumped across the board during Wednesday’s trading session, which helped push the DXY Index 0.33% higher and above the 98.50 price level. The DXY Index – a popular benchmark for tracking the greenback’s performance heavily concentrated toward EURUSD – was largely propelled by US Dollar strength relative to the Euro as dovish expectations mount ahead of the September ECB meeting slated for tomorrow.

While the upcoming ECB decision and its impact on EURUSD will likely overwhelm the direction of the DXY Index on Thursday, there is an elevated risk of subsequent swings in spot prices as forex traders shift focus back to the US Dollar and expectations around Federal Reserve monetary policy.

DXY INDEX – US DOLLAR PRICE CHART: DAILY TIME FRAME (MARCH 19, 2019 TO SEPTEMBER 11, 2019)

US Dollar Index Price Chart Technical Analysis

Chart created by @RichDvorakFX with TradingView

As such, our most likely scenario anticipates a choppy trading range for the DXY Index over the near-term with a slight bias tilted in favor of USD bulls. That said, high-impact event risk listed on the DailyFX Economic Calendar shows US inflation and employment data slated for release Thursday at 12:30 GMT. With stable prices and employment falling under the Fed’s stated dual mandate, the economic indicators may warrant a sizable response in US Dollar price action if the figures cross the wires materially above or below market consensus.

Seeing that a 25-basis point FOMC rate cut next week is priced in as a near certainty, robust data prints on either core inflation or jobless claims Thursday could jolt the US Dollar in particular as it could cause traders to question the probability of forthcoming Fed accommodation. On the other hand, lackluster data readings might provide the Fed with additional ammunition to justify further easing. Nevertheless, the current backdrop encompassing the US Dollar and looming central bank decisions is no exception to the general rule that heightened uncertainty is typically accompanied by elevated measures of implied volatility.

US DOLLAR IMPLIED VOLATILITY & TRADING RANGES (1-WEEK)

US Dollar Implied Volatility Trading Ranges EURUSD, GBPUSD, USDJPY, USDCHF, AUDUSD, USDCAD, NZDUSD, USDSEK, USDMXN, USDCNH

Correspondingly, US Dollar 1-week implied volatility readings continue to creep higher. In fact, EURUSD 1-week implied volatility has surged to its highest reading since December 2018 and ranks in the top 90th percentile of measurements over the last 12 months. Calculated using its 1-week implied volatility reading of 7.62%, spot EURUSD is estimated to fluctuate between 1.0890-1.1122 with a 68% statistical probability with US Dollar price action set to gyrate around ECB and Fed meetings unfold over the coming days.

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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