US DOLLAR OUTLOOK: EUR / USD PRICE ACTION HINDS ON POWELL TESTIMONY, PRAYING STIMULUS OFFER
- The EUR / USD price action progresses to monthly highs following its recent consolidation
- DXY index is under pressure again as bulls give up the 50-day simple moving average
- US dollar looks at Treasury yields, stimulus negotiations and Fed Chairman Powell for direction
- Sharpen your technical analysis skills or learn about implied volatility trading strategies!
The US dollar is trading on its hind foot to start the week. The selling pressure of the US dollar was felt in most major currency pairs such as EUR / USD, GBP / USD and USD / JPY. Despite the lustful risk appetite for equities during the session, it appears that the latest tranche of the US dollar weakness largely follows the prevailing deals with reflection theme as sovereign yields climb and crude oil rises. On balance, the broader DXY index fell by -0.3% to the price of 90.10.
US DOLLAR INDEX PRICE CARD: DAILY TIME FRAME (25 NOV 2020 TO 22 FEB 2021)
Graph by @RichDvorakFX created using TradingView
The DXY index has fallen significantly over the past two weeks to the price action of EUR / USD with a weight of 57.6%, and has fallen just below its 50-day moving average. Meanwhile, a head-and-shoulders reversal pattern appears to have formed. A further US dollar push below the 90.00 handle could confirm a breakdown of the neck support. If realized, it could motivate the result of lower and put the lower Bollinger band in focus as a possible downside. If US dollar bulls can regain the 50-day moving average, another look at the February 17 swing could come up again.
|
Change in |
Miss |
Shorts |
OI |
| Daily | -3% | 5% | 1% |
| Weekly | -19% | -1% | -9% |
PRICE FORECAST USD – US Dollar Implied Volatility Trading Series (Overnight)
Implied volatility readings for select U.S. dollar currency pairs tapped higher overnight, placing above their respective 20-day averages. Although, if we look at the 12-month percentage ranking, the US dollar volatility remains relatively subdued. The opportunity risk posed by Fed Chairman Powell’s semi-annual congressional testimony, which would begin on Tuesday, February 23 at 3:00 PM GMT, stands as a potential catalyst for currency volatility.
It is very likely that Chairman Powell will reiterate the extremely accommodating attitude of the Federal Reserve and the need for more fiscal stimulus. Nevertheless, traders may consider the potential remarks about the FOMC’s willingness to keep borrowing costs low amid the recent rise in treasury yields. Another possible driver of US dollar volatility includes progress in passing the $ 1.9 billion fiscal stimulus package proposed by President Joe Biden. The US dollar may rise slightly if speed bumps occur on the way to finalizing a stimulus deal, but it could be short-lived.
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– Written by Ryk Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insights