US DOLLAR OUTLOOK: GBP/USD PRICE ACTION SLIDES, USD/CAD ADVANCES AS VOLATILITY POPS TO START 2021
Markets teed off the new year with a continuation of the bearish US Dollar narrative at the APAC open. US Dollar selling pressure accelerated once Europe came online and propelled the DXY Index lower by about -0.5% intraday, but the US Dollar clawed back lost ground as trading progressed.
The mid-day bid beneath USD price action seemed to correspond with a deterioration in market sentiment that likely stemmed from resurgent covid concerns. On balance, the US Dollar is set to close out the first session of 2021 practically unchanged gauging by DXY Index performance.
DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (08 OCT 2020 TO 04 JAN 2021)
Chart by @RichDvorakFX created using TradingView
Taking a look across the major currency pairs, we see that US Dollar strength was notable relative to its Pound Sterling and Canadian Dollar peers, though this was widely offset by weakness against the Euro. GBP/USD price action sank 150-pips from session highs as markets digested news that the UK is bracing for another national lockdown set to take effect Tuesday, 05 January. USD/CAD pivoted 120-pips higher off intraday lows as bears failed to sustain a push below the 1.2700-price level. EUR/USD rates whipsawed similarly.
USD PRICE OUTLOOK – US DOLLAR IMPLIED VOLATILITY TRADING RANGES (OVERNIGHT)
US Dollar implied volatility readings have turned higher since a lull over the holidays. Larger-than-expected swings across USD price action recently could also be inflating the figures. Not to mention, the week ahead showcases several catalysts for volatility lurking on the horizon with potential to weigh materially on the direction of the US Dollar. This might warrant relatively more stringent risk management techniques until the dust settles and clarity emerges in the wake of high-impact event risk that looms.