USD : Volatile Trading Ranges

(Tue, 8 Dec 2020). The US Dollar traded mixed against its major FX peers on Monday. A sharp slide by GBP/USD helped offset US Dollar downside against the Euro and steered the broad-based DXY Index marginally higher on balance. Nevertheless, following a considerable stretch of US Dollar weakness, the basket of major currency pairs still fluctuates around two-year lows. Sustained selling pressure across USD price action has coincided with the VIX falling to its lowest level since the coronavirus pandemic first roiled markets earlier this year.

That said, the confluence of high-impact event risk outlined on the DailyFX Economic Calendar might weigh materially on USD price action throughout the week. Potential for an acceleration in US Dollar volatility is suggested by the latest one-week implied volatility readings. Also, realized US Dollar volatility has spiked higher over recent trading sessions as indicated by the Bollinger Band expansion.

This could facilitate further downside potential as the bearish US Dollar trend persists. Conversely, in the event of a mean-reversion back higher, the DXY Index could face technical resistance near the 92.00-price level, which is roughly underpinned by the 20-day simple moving average and 38.2% Fibonacci retracement of its latest leg lower.

At any rate, EUR/USD and GBP/USD will likely be center stage this week in light of the ECB meeting and intensifying Brexit negotiations. Similarly, USD/CAD could also come into focus considering a BOC rate decision is due as well. The Euro and British Pound comprise 57.6% and 11.9% of the US Dollar Index respectively while the Canadian Dollar holds a 9.1% weight. GBP/USD is expected to be the most active US Dollar pair according to its one-week implied volatility reading of 16.0%. EUR/USD one-week implied volatility was just clocked at 8.2% and compares to its 20-day average reading of 6.4%.

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