US Dollar Eyes Fed Chair Powell, Stimulus

US DOLLAR PERSPECTIVE: EUR / USD PRICE HINGE ACTION IN POWELL’S TESTIMONY, BIDEN STIMULUS BUSINESS

• EUR / USD price action advancing towards monthly highs after its recent consolidation
• DXY index under pressure once again with bulls yielding the 50-day simple moving average
• The US dollar seeks Treasury yields, stimulus trades and Fed Powell chairman for guidance
• Sharpen your technical analysis skills or learn about implied volatility trading strategies!

The US dollar is trading in recovery earlier in the week. The selling pressure of the US dollar was felt in most major currency pairs, such as EUR / USD, GBP / USD and USD / JPY. Despite the warm appetite for risk for stocks during the session, it appears that the last stretch of the weakness of the US dollar largely follows the prevailing reflection trade theme as sovereign yields rise and crude oil skyrockets. On the balance sheet, the broader DXY index fell -0.3%, to the price level of 90.10.

US DOLLAR INDEX PRICE TABLE: DAILY PERIOD (25 NOV 2020 TO 22 FEB 2021)

Graph by @RichDvorakFX created using TradingView

Strongly inclined to EUR / USD price action with a weighting of 57.6%, the DXY Index has retreated considerably in the past two weeks and has just closed below its 50-day moving average. Meanwhile, it looks like a head-and-shoulders reversal pattern may have formed. Another US dollar boost below the 90.00 range may confirm a break in the neckline support. If materialized, this can motivate inferior follow-through and bring the Bollinger Band from below into focus as a potential goal of disadvantage. If bulls on the US dollar can recover the 50-day moving average, however, another view of the swinging high of February 17 may return to the game.

PRICE PERSPECTIVE IN USD – IMPLIED VOLATILITY TRADING RANGE IN US DOLLAR (NIGHT)

The overnight implied volatility readings for selected US dollar currency pairs have risen and are above their respective 20-day averages. Although, when looking at the 12-month percentile ratings, the US dollar’s implied volatility remains relatively subdued. The event risk represented by Fed Powell’s semester testimony in Congress, scheduled to begin Tuesday, February 23 at 15:00 GMT, stands out as a potential catalyst for currency volatility.

President Powell is more likely to reiterate the Federal Reserve’s over-accommodating stance and the need for more fiscal stimulus. However, traders may be on the lookout for possible comments on the FOMC’s willingness to keep borrowing costs low amid the recent increase in Treasury yields. Another potential driver of US dollar volatility includes progress in approving President Joe Biden’s proposed $ 1.9 trillion fiscal stimulus package. The US dollar may settle somewhat if there are problems on the way to finalizing a stimulus agreement, although this may be short-lived.

— Written by Rich Dvorak, Analyst for DailyFX.com

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