US Dollar Price Volatility Report: Fed to Follow ECB Footsteps

(MENAFN- DailyFX) US DOLLAR CURRENCY VOLATILITY PUSHES HIGHER AS CENTRAL BANK DECISIONS LOOM USDprice action stands to be driven predominantly by the ECB meeting on deck and less by factors specific to the US Dollar with the Fed sidelined until next week US Dollar implied volatility continues to climb, owing largely to monetary policy uncertainty, which stands to roil markets as traders await the latest central bank decisions Read more on the outsized global influence ofFed & ECB Monetary Policy Shifts

The US Dollar jumped across the board during Wednesday's trading session, which helped push theDXYIndex 0.33% higher and above the 98.50 price level. The DXY Index – a popular benchmark for tracking the greenback's performance heavily concentrated towardEURUSD– was largely propelled by US Dollar strength relative to theEuroas dovish expectations mount ahead of theSeptember ECB meetingslated for tomorrow.

While the upcoming ECB decision and its impact on EURUSD will likely overwhelm the direction of the DXY Index on Thursday, there is an elevated risk of subsequent swings in spot prices as forex traders shift focus back to the US Dollar and expectations around Federal Reserve monetary policy.

Chart created by@RichDvorakFXwithTradingView

As such, our most likely scenario anticipates a choppy trading range for the DXY Index over the near-term with a slight bias tilted in favor of USD bulls. That said, high-impact event risk listed on theDailyFX Economic Calendarshows US inflation and employment data slated for release Thursday at 12:30 GMT. With stable prices and employment falling under the Fed's stated dual mandate, the economic indicators may warrant a sizable response in US Dollar price action if the figures cross the wires materially above or below market consensus.

Seeing that a 25-basis pointFOMCrate cut next week is priced in as a near certainty, robust data prints on either core inflation or jobless claims Thursday could jolt the US Dollar in particular as it could cause traders to question the probability of forthcoming Fed accommodation. On the other hand, lackluster data readings might provide the Fed with additional ammunition to justify further easing. Nevertheless, the current backdrop encompassing the US Dollar and loomingcentral bank decisionsis no exception to the general rule that heightened uncertainty is typically accompanied by elevated measures of implied volatility.

Correspondingly, US Dollar 1-week implied volatility readings continue to creep higher. In fact, EURUSD 1-week implied volatility has surged to its highest reading since December 2018 and ranks in the top 90th percentile of measurements over the last 12 months. Calculated using its 1-week implied volatility reading of 7.62%, spot EURUSD is estimated to fluctuate between 1.0890-1.1122 with a 68% statistical probability withUS Dollar price action set to gyrate around ECB and Fedmeetings unfold over the coming days.

-- Written byRich Dvorak , Junior Analyst forDailyFX.com

Connect with@RichDvorakFXon Twitter for real-time market insight

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