US DOLLAR OUTLOOK: USD PRICE ACTION GYRATES LOWER AS FED CHAIR POWELL SIGNALS ASSET PURCHASES TO CONTINUE AT CURRENT PACEUS Green
US DOLLAR OUTLOOK: USD PRICE ACTION GYRATES LOWER AS FED CHAIR POWELL SIGNALS ASSET PURCHASES TO CONTINUE AT CURRENT PACE
- US Greenback went on a curler coaster experience throughout Wednesday’s buying and selling session as volatility spiked
- USD worth motion edged decrease after PMIs then ripped and dipped following the FOMC resolution
- The DXY Index might resume its grueling decline with US Greenback weak point wanting set to persist
It was one other tough buying and selling session for US Greenback bulls who lacked impetus to maintain a bid as soon as once more. The broad-based mostly DXY Index encountered one other wave of promoting stress early Wednesday as EUR/USD worth motion gained on the most recent PMI knowledge and the Pound-Greenback prolonged its rally on the again of Brexit deal hypothesis. US Greenback weak point was offset barely owing to a rebound by USD/CAD with the Loonie declining throughout the board in response to yesterday’s jawboning from BoC Governor Macklem. The US Greenback recovered extra broadly into afternoon commerce because the scheduled Fed announcement neared.
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USD worth motion strengthened and climbed into constructive territory instantly after the FOMC assertion crossed market wires, which appeared attributable to a steepening US Treasury yield curve. This was probably sparked by central financial institution officers penciling in additional optimistic financial projections. The bid beneath the US Greenback was short-lived, nonetheless, as Federal Reserve Chair Jerome Powell underscored that the central financial institution intends to proceed its present tempo of asset purchases at $120-billion per 30 days.
DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (13 AUG TO 16 DEC 2020)
Chart by @RichDvorakFX created utilizing TradingView
Commentary from Fed Chair Powell, like how the FOMC intends to keep up its QE program till ‘substantial’ progress on mandated objectives is made, or doubling down on dovish language with remarks that ‘nobody ought to doubt Fed dedication to aiding the financial system and using financial coverage instruments for so long as it takes’ appeared to sign a passion for working markets scorching and retaining them flush with liquidity. This appeared to have helped reinvigorate a risk-on tilt throughout main inventory indices and launched recent headwinds to the safe-haven US Greenback.
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The Federal Reserve additionally opted to increase its FX swap strains, which might facilitate lingering US Greenback weak point. Shifting gears to a technical perspective, the DXY Index confronted one other rejection at its 9-day easy transferring common. This implies that US Greenback bears are nonetheless within the driver seat. Likewise, the MACD indicator exhibits that bearish momentum has re-accelerated over the past two buying and selling periods. These developments, to not point out progress made by congress on fiscal stimulus and omnibus spending packages, stand to maintain the door open for a continuation of US Greenback promoting stress.
USD PRICE OUTLOOK – US DOLLAR IMPLIED VOLATILITY TRADING RANGES (OVERNIGHT)
Be taught Extra – What’s Implied Volatility & Why Ought to Merchants Care?
That each one stated, catalysts with potential of igniting a reversal increased by USD worth motion nonetheless lurk on the horizon. A cloth deterioration in danger urge for food as near-term covid issues and mounting lockdowns conflict with broader vaccine optimism, along with a breakdown in both Brexit or US fiscal negotiations, stand out as most distinguished. If these threats materialize, there may very well be a pointy spike within the S&P 500-derived VIX Index, which could correspond with a stronger US Greenback in flip given their usually robust constructive relationship.
— Written by Wealthy Dvorak, Analyst for DailyFX.com
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