US DOLLAR OUTLOOK: USD PRICE ACTION HINGES ON STIMULUS DEAL DRIVEN VOLATILITY Fiscal stimulus negotiations proceed to largely dri
US DOLLAR OUTLOOK: USD PRICE ACTION HINGES ON STIMULUS DEAL DRIVEN VOLATILITY
Fiscal stimulus negotiations proceed to largely drive the path of the US Greenback. The DXY Index declined round half a % throughout Monday’s buying and selling session with FX merchants nonetheless seeming optimistic that US politicians can agree on one other coronavirus support package deal earlier than the upcoming election.
Over the weekend, Home Speaker Nancy Pelosi positioned a 48-hour deadline for the Trump Administration to reconcile their $1.8-trillion package deal proposal with the $2.2-trillion stimulus invoice laid out by Democrats. Senate Chief Mitch McConnell is anticipated to name for a vote on a focused stimulus deal that carries a a lot cheaper price tag at round $500-billion.
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US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (17 JUL TO 19 OCT 2020)
Chart by @RichDvorakFX created utilizing TradingView
The prospect of extra fiscal firepower to counter the coronavirus pandemic’s toll on the US financial system is a main driver of latest USD promoting stress. That mentioned, uncertainty surrounding the chance that Home Democrats and Senate Republicans can put aside their political variations to agree on one other stimulus deal has contributed materially to US Greenback volatility. Discrepancies largely stay over the quantity of fiscal funding to supply to state and native governments. Failure to succeed in a deal earlier than the two-day deadline imposed by Speaker Pelosi opens up the door to potential for an enormous breakdown in stimulus negotiations, which might doubtless stand to ship the US Greenback exploding larger and shares swooning decrease into the November 2020 election.
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In the meantime, the broader DXY Index nonetheless gravitates round a important degree of technical confluence underpinned by its 50-day easy shifting common. USD value motion additionally seems coiled between two conflicting trendlines: a short-term bearish pattern recognized by the decrease highs recorded on 25 September and 15 October juxtaposed with a medium-term bullish pattern creating from larger lows printed on 31 August and 12 October. A break beneath the ascending trendline might tee-up a fast transfer towards technical help highlighted by the 92.75-price degree whereas a break above the descending trendline may inspire US Greenback bulls to focus on the 94.00-handle and September swing highs.
USD PRICE OUTLOOK: US DOLLAR IMPLIED VOLATILITY TRADING RANGES (1-WEEK)
Key FX counterparts to the US Greenback – such because the EUR and GBP – have additionally contributed to latest Buck turbulence. EUR/USD and GBP/USD comprise 57.6% and 11.9% of the DXY Index respectively and thus are likely to weigh notably on the broader US Greenback. As new COVID-19 circumstances climb and restrictions on enterprise exercise are reimplemented throughout the Eurozone and UK, mounting coronavirus issues may exacerbate potential US Greenback power given its standing as a high safe-haven foreign money.
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To not point out, the Pound-Greenback stays uncovered to ongoing Brexit drama as nicely. GBP/USD is estimated to be essentially the most lively main foreign money pair this week based on one-week implied volatility readings clocked as of Friday’s shut. Choices-implied buying and selling ranges are calculated utilizing 1-standard deviation (i.e. 68% statistical likelihood value motion is contained inside the implied buying and selling vary over the required time-frame).
— Written by Wealthy Dvorak, Analyst for DailyFX.com
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