US DOLLAR OUTLOOK: EUR / USD PRICE ACTION HINGES IN POWELL TESTIMONY, BIDEN STIMULUS DEAL
- EUR / USD price action moves toward monthly highs after recent consolidation
- DXY Index Under Pressure Once Again As Bulls Give Up 50-Day Simple Moving Average
- The US dollar seeks guidance in Treasury yields, stimulus negotiations and Fed Chairman Powell
- Sharpen your technical analysis skills or learn about implied volatility commercial strategies!
The US dollar is trading on the defensive to start the week. The selling pressure of the US dollar was felt on most major currency pairs, such as EUR / USD, GBP / USD, and USD / JPY. Despite the tepid appetite for equity risk during the session, it appears that the last leg of US dollar weakness largely follows prevalence reflation trade issue as sovereign yields rise and crude oil soars. Overall, the broader DXY index fell -0.3% to the price level of 90.10.
US DOLLAR INDEX PRICE TABLE: DAILY TIME FRAME (NOVEMBER 25, 2020 TO FEBRUARY 22, 2021)
Graph by @RichDvorakFX created using TradingView
Heavily skewed towards EUR / USD price action with a 57.6% weighting, the DXY index has retreated considerably over the past two weeks and has just closed below its 50-day moving average. In the meantime, it appears that a head and shoulders reversal pattern may have formed. Another push from the US dollar bears below the 90.00 level could confirm a breakout of the neckline support. If it materializes, this could motivate a lower following and target the lower Bollinger band as a potential downside target. However, if the US dollar bulls can regain the 50-day moving average, another look at the February 17 high could come into play again.
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USD PRICE OUTLOOK – IMPLIED VOLATILITY TRADING RANGES IN US DOLLARS (OVERNIGHT)
Overnight Implied Volatility readings for selected US Dollar currency pairs have risen and are above their respective 20-day averages. Although, when looking at the 12-month percentile rankings, the implied volatility of the US dollar remains relatively subdued. The event risk raised by Fed Chairman Powell’s biannual testimony to Congress scheduled to begin Tuesday, February 23 at 3:00 p.m. GMT stands out as a potential catalyst for currency volatility.
Most likely, President Powell will reiterate the Fed’s super-accommodative stance and the need for more fiscal stimulus. Still, traders could be on the lookout for possible comments on the FOMC’s willingness to keep borrowing costs low amid the recent surge in Treasury yields. Another possible driver of the volatility of the US dollar includes progress in passing the $ 1.9 trillion fiscal stimulus package proposed by President Joe Biden. The US dollar could pick up a bit if speed gains are encountered on the way to finalizing a stimulus deal, although that may prove short-lived.
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— Written by Rich dvorak, Analyst of DailyFX.com
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