Retail Sales & FOMC in Focus

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US DOLLAR CURRENCY VOLATILITY EYES SEPTEMBER RETAIL SALES DATA & FOMC RATE CUT ODDS

  • The US Dollar remains bogged down by strength exhibited by EURUSD and GBPUSD owing to rising Brexit deal hopes
  • USD price action will look to the high-impact release of US retail sales data expected Wednesday as the figures likely possess potential to sway FOMC interest rate cut expectations
  • Enhance your market knowledge with our free Forecasts & Trading Guides

The US Dollar slumped once again with the DXY Index edging -0.13% lower as Tuesday’s trading session winds down. It has been noted more than once in the daily publishing of this US Dollar price volatility report, however, that USD price action has been driven more-so by counter-currency strength rather than isolated weakness in the greenback. This seems to be the case again with EURUSD and GBPUSD extending their surge in response to the latest Brexit developments considering the two USD currency pairs make up roughly 70% of the DXY Index’s composition.

US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (APRIL 10, 2019 TO OCTOBER 15, 2019)

Chart created by @RichDvorakFX with TradingView

Drilling down on a shorter time frame like an hourly US Dollar price chart reveals that USD price action perked up early on in the day, which could be explained broadly by safe-haven demand following reports that the IMF slashed its World Economic Outlook yet again. Though upside in the US Dollar measured by the DXY Index quickly reversed later in the session after Brexit headlines crossed the wires that the UK and EU are inching closer toward reaching a deal.

That said, the US Dollar still seems to be clinging onto a critical support level underscored by the 38.2% Fibonacci retracement of the DXY Index’s bullish stretch since mid-June. This area of technical confluence is also highlighted by the US Dollar’s 50-day simple moving average and could help keep the greenback roughly anchored. Nevertheless, the US Dollar has been probing its bullish trendline extended from the intraday swing lows printed on June 25 and August 23.

US RETAIL SALES DATA SET TO SWAY US DOLLAR PRICE ACTION

US Retail Sales Historical Data Chart

The median economist estimate for September US retail sales advance data is 0.30%, which would be a marginal dip from the prior month’s reading of 0.36% that beat expectations of 0.20%. I noted in the US Dollar price volatility report published this past Friday how the US consumer is the backbone of America’s economy and how another solid US retail sales number could provide the Fed with an extra reason to leave interest rates unchanged at its upcoming meeting.

FOMC INTEREST RATE CUT PROBABILITIES (OCTOBER 2019)

FOMC Interest Rate Cut Probability October 2019

According to the latest overnight swaps pricing, markets are pricing a 72.8% probability that the Federal Reserve’s FOMC cuts interest rates for a third consecutive meeting. Evidence that robust US consumer spending remains unphased despite ongoing US-China trade war uncertainty and ballooning recession fears could cause rate traders to unwind aggressively front-loaded FOMC interest rate cut expectations, which would likely provide a boost to the US Dollar.

US DOLLAR IMPLIED VOLATILITY & TRADING RANGES (OVERNIGHT)

US Dollar Price Trading Ranges Implied Volatility Table

GBPUSD is expected to be the most volatile major currency pair during Wednesday’s trading session in light of lingering Brexit negotiations. USDCAD overnight implied volatility of 5.6%, although above its 20-day average reading of 4.8%, appears relatively low considering that the CAD is at risk ahead of inflation data while the US is exposed to upcoming retail sales figures.

US DOLLAR RISK REVERSALS (OVERNIGHT)

US Dollar Risk Reversal Chart

A risk reversal reading above zero indicates that the demand for call option volatility (upside protection) exceeds that of put option volatility (downside protection). For additional insight on market positioning and bullish or bearish biases, traders can turn to the IG Client Sentiment data, which is updated in real-time and covers several currency pairs, commodities, and equity indices.

— Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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