USD : Volatility Under Pressure

(Wed, 30 Dec 2020). The US Dollar came back under pressure on Tuesday with USD price action weakening across the board of major currency pairs. This fueled a -0.4% decline by the broad-based DXY Index for the session and left the benchmark perched around month-to-date lows. US Dollar weakness was notable against the Aussie and Sterling with AUD/USD and GBP/USD gained 32-pips and 49-pips respectively.

US Dollar bears look to be back in the driver seat after wrestling back control of short-term direction. This is indicated by the DXY Index on pace for a close below its 8-day simple moving average. Despite the latest resumption of selling pressure across USD price action, which caused the DXY Index to tumble below the 90.00-handle again, US Dollar bulls might make a stand around the 17 December swing low.

This potential area of technical support is underpinned by its bottom Bollinger Band. Breaching this level, however, could tee up an acceleration in bearish momentum and prime the relative strength index for another plunge. A relief bounce toward the 91.10-price level could come into play if the US Dollar Index can surmount its negatively-sloped 20-day simple moving average.

USD PRICE OUTLOOK - US DOLLAR IMPLIED VOALTILITY TRADING RANGES (OVERNIGHT)

Realized currency volatility has been subdued over the last few trading sessions largely owing to the winter holiday season, but according to overnight US Dollar implied volatility readings, market activity is expected to pick up for the final full session of 2020. That said, it is worth noting that swings across USD price action could be exacerbated by rebalancing flows as traders position for the new year.

Whether or not the Senate agrees to increase direct coronavirus aid payments from $600 to $2,000 is another key theme worth keeping on the radar. Though passing the bill seems to be the less likely scenario, an aggressive spike lower by the US Dollar could materialize if the legislation is approved by both chambers of congress.

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