Amid weakening market sentiment, the US dollar was hit by rising volatility; dollar price action awaits non-farm payrolls.
- Worsening risk appetite boosts dollar, dollar price strengthens
- The dollar is trying to turn up, and the S&P 500 VIX. surge (of water)
- Upcoming NFP report in August 2020 has the potential to accelerate market volatility
The dollar chased gains in Thursday’s trading. Dollar price action has been moving higher on the back of broad risk aversion, while market sentiment has deteriorated.The sharp rise in the VIX index, the fear gauge, also appears to be supporting the anti-risk move in the dollar, which typically maintains a strong positive relationship with the USDJPY. Generally speaking, this can be explained by the dollar’s stance as a top. Safe haven currencies .
Dollar Price Chart, VIX Index Coverage. Daily Timeframe (March 27 to September 3, 2020)
Successive declines Services PMI data Data released this morning may have fueled the latest growth in demand for cash and downside protection as the share price stumbles. However, the dollar surrendered most of the day’s gains, after the DXY failed to break out of the Technical Resistance constitutes the 93.00 price level.
DXY Index Price Chart: Daily Time Frame (05 JUN TO 03 SEP 2020)
The broader dollar has moved slightly higher over the past three trading days, but the current short-term buoyancy clashes with a series of lower highs that have formed a bearish channel over the past few weeks. That said, the future outlook for dollar prices will largely depend on the upcoming non-farm payrolls data and how the market chooses to interpret the monthly employment report.
USD Price Outlook. USD Implied Volatility Trading Range (Overnight).
The August 2020 NFP report, due out this Friday, September 04 at 12:30 GMT, could further inflame trader sentiment if the jobs data disappoints. In turn, this could accelerate the rally attempt staged by the US dollar amid rising risk aversion. However, the bearish factor is also on the rise. Trend It could prevail, sending the dollar price trending back toward two-year lows.
This highlights the potential for the U.S. dollar to maintain a rough trading range defined using overnight implied volatility readings. The implied trading range for options is calculated as one standard deviation (i.e., 68% statistical probability of price movement is included in the implied trading range for the specified time frame).