USD / CAD volatility rises, jobs data rises
OUTLOOK IN US DOLLAR: VOLATILITY OF USD / CAD PRICES IN FOCUS ON JOB DATA
- The US dollar fell -0.4% on Thursday, as measured by the Wider DXY index
- The sale of the US dollar was the largest against its peers in euros, Australian dollars and Canadian dollars
- USD / CAD price action looks ripe for more volatility due to the event risk posed by the employment data
The US dollar bears flexed their muscles in Thursday’s trading session and pushed the greenback to weekly lows. The larger DXY index fell -0.4% the day after it failed to break through the price point of 91.40. I have highlighted this large area of technical resistance in my forecast for the US dollar published earlier during the week. The pressure to sell the US dollar was mainly fueled by the strength of the EUR / USD and the weakness of the USD / CAD. AUD / USD also had a strong session with a gain of 34 pips.
The US dollar has fallen despite a new round of comments from Dallas Fed Chairman Robert Kaplan, who reiterated his thinking Federal Reserve should start discussions earlier rather than later. Markets have likely overlooked these headlines, as Kaplan is known to be relatively hawkish, and more importantly, a non-voter on Fed policy this year.
DXY – INDEX PRICE CHART IN US DOLLAR: DAILY FRAMEWORK (DEC 24, 2020 TO MAY 06, 2021)
From a technical point of view, the simple 20 days with a negative slope moving average seems to help orient the US dollar index lower. That said, the last wave of the decline came to an end before making new weekly lows. US dollar bulls might try to regain control of direction, but technical resistance around the price level of 91.40 remains a big obstacle. Overshadowing that technical barrier, however, could open the door for a sudden movement towards the 92.00 handle. While it seems more likely that the broader DXY index could be headed for technical support posed by the 90.50 price level, which is underpinned by a confluence of the April tilt, a rise trend line as well as the background Bollinger Band.
USD PRICE OUTLOOK – IMPLIED VOLATILITY TRADING RANGES IN US DOLLAR (OVERNIGHT)
Looking ahead to Friday’s trading session, we see that the US dollar may be in reserve for more intense market activity. This is judging by the overnight implied volatility readings for major currency pairs, which are generally above their respective 20-day averages. The USD / CAD price action looks ripe for volatility in particular. USD / CAD overnight implied volatility 9.0% from its 20-day average of 6.3% and ranks in the top 92nd percentile of measurements taken in the past 12 months. Taking a quick glance at the DailyFX Economic Calendar shows that both the US dollar and the Canadian dollar face high impact event risk from the release of monthly employment data. This fundamental catalyst expected on Friday May 7th at 13:30 GMT will likely be the focus of concerns for USD / CAD traders.
Keep reading – Canadian Dollar Forecast: USD / CAD Fall Marks Fifth Week; NFP on Tap
— Written by Rich dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for a real-time market snapshot