US DOLLAR OUTLOOK: DXY INDEX EXTENDS ADVANCE AS USD PRICE ACTION STAYS STRONG
- The US Dollar is on pace to put in another strong session as Treasury yields pivot higher
- DXY Index climbs to fresh four-month highs and trades comfortably above its 200-DMA
- Improve your technical analysis or learn about implied volatility trading strategies!
US Dollar bulls are ratcheting the Greenback broadly higher headed into Tuesday’s close. The DXY Index is on pace for a 0.35% gain to trade around the 93.25-price level and fresh four-month highs. US Dollar strength has been felt across the board of FX peers. EUR/USD shed another 40-pips on the day, for example, while USD/JPY spiked above the 110.00-price level. These two major currency pairs are the largest components of the DXY Index with weightings of 57.6% and 13.6%, respectively. News flow was rather muted throughout the session, though robust consumer confidence data released this morning likely reinforces the US outperformance narrative.
DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (09 SEP 2020 TO 30 MAR 2021)
From a technical perspective, US Dollar bulls look clearly in control of direction. Resistance posed by the 200-day simple moving average, as well as the 23.6% Fibonacci retracement last year’s trading range, proved to be feeble obstacles. Upward momentum propelling the US Dollar continues to accelerate judging by the MACD indicator.
This brings to focus the 03 November swing high into focus as the next potential technical resistance level. Although, it is worth noting that the broader DXY Index is starting to look a little extended with the relative strength index flirting with overbought territory. The upper Bollinger Band also appears to be keeping US Dollar upside relatively contained. A push by US Dollar bears might look to test prior resistance-turned-support posed by the 08 March high.
USD PRICE OUTLOOK – US DOLLAR IMPLIED VOLATILITY TRADING RANGES (OVERNIGHT)
US Dollar overnight implied volatility readings show that USD/JPY price action is expected to be the most active headed into Wednesday’s trading session. This is judging by USD/JPY overnight implied volatility of 7.5%, which compares to its 20-day average reading of 6.0% and ranks in the top 84th percentile of measurements taken over the last 12-months. US President Joe Biden is on deck to announce part-one of his infrastructure package tomorrow and will likely steal the limelight for event risk. Month-end and quarter-end rebalancing flows might weigh on the direction of the US Dollar as well.
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