January 26, 2021 3:01 PM
US Dollar volatility should lighten ahead of FOMC: DXY, GBP/USD, NZD/USD
The US Dollar had a good deal of volatility earlier in the session, with the DXY opening near 90.39 and moving to a high of 90.61, only to reverse sharply to a current low of 90.11. Stocks opened the day and pushed higher, which resulted in the move lower in DXY (stocks and the US Dollar are inversely related). However, tomorrow is the first FOMC meeting of 2021. DXY volatility should begin to slow ahead of the meeting as traders square up positions and reduce exposure before the potential volatile event.
DXY
Day in and day out, traders look for standout volatility in currency pairs for which they can profit. Since January 11th, there has been some good intra-day volatility, although it has been hard to find US Dollar pairs to hold onto for long. Since breaking out of a descending wedge on a 240-minute timeframe on January 7th, the index has been moving in a sideways channel between 90.00 and 90.75, with a false breakout to either side. Heading into the FOMC, one should consider that we will maintain this range.
Source: Tradingview, City Index
Yesterday, we considered the volatility in stocks, and if it could cause a move higher in the US Dollar. Included in the article, we looked at GBP/USD. The pair sold off early in today’s session (blowing off good employment data), only to reverse and move from a low of 1.3609 to a high of 1.3744, a 135-pip move! If the US Dollar volatility is to quiet down, strong resistance and divergence between price and the RSI could cause the pair to drift lower towards intraday support at 1.3675 ahead of the FOMC meeting.
Source: Tradingview, City Index
On a 240-minute timeframe, NZD/USD appears to be trying to break out of a continuation inverse head and shoulders. Price spiked higher just above resistance to 0.7747, only to pull back. However, if the US Dollar volatility is to die down ahead of the FOMC tomorrow, NZD/USD should begin to drift lower towards support at 0.7200.
Source: Tradingview, City Index
There was a good bit of volatility in some of the US Dollar pairs today. However, heading into tomorrow’s FOMC meeting, that volatility should die down.
If one is only a US Dollar pairs trader, make sure to not “force a trade” ahead of the meeting. However, others can also look to trade non-US Dollar currency pairs, which would take the FOMC risk out of the equation. Some examples could be AUD/NZD, EUR/NOK, and GBP/ZAR.
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