US Dollar Outlook: Fed Taper Talk at Jackson Hole is Key

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US DOLLAR OUTLOOK: DXY INDEX PARES GAINS AHEAD OF FED SYMPOSIUM

  • US Dollar price action has weakened broadly over the last few trading sessions
  • DXY Index down -0.9% since last Friday’s swing high as bears fade recent strength
  • Fed taper talk at the Jackson Hole Symposium presents noteworthy volatility risk

US Dollar bears have been in the driver’s seat and steered the broader DXY Index nearly -1.0% lower since Friday. This appears to follow a deterioration in economic data and global growth outlook, which could be enough for the Federal Reserve to delay an announcement of a timeline for tapering asset purchases.

With markets walking back expectations that the Fed might use its annual Jackson Hole Symposium as a platform for outlining what the taper timeline might look like, it comes as little surprise that the US Dollar has pared recent gains. Broad-based selling pressure across USD price action could continue if FOMC officials remain cautious with their guidance owing to the delta variant of COVID-19 and its potential to derail the economic recovery.

DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (13 MAY TO AUGUST 25 2021)

DXY Chart

Chart by @RichDvorakFX created using TradingView

That said, the latest US Dollar pullback does leave the DXY Index at an interesting technical support level headed into Jackson Hole event risk. The DXY Index currently trades around the 92.80-price level, which is roughly underpinned by its 20-day simple moving average and 23.6% Fibonacci retracement level of the latest bullish leg. An ascending trendline connecting the 09 June and 04 August swing also highlights this potential area of buoyancy.

Due to accelerating downward momentum and the broader US Dollar weakening for the last four consecutive trading sessions, however, a bearish MACD crossover has formed. This suggests the US Dollar remains vulnerable to an extended reversal lower, and in turn, could see US Dollar bears set their sights on the bottom Bollinger Band. On the other hand, if the Fed catches markets offside with a taper announcement at Jackson Hole, there would likely be an influx of US Dollar strength that brings year-to-date highs back into focus.

USD PRICE OUTLOOK – US DOLLAR IMPLIED VOLATILITY TRADING RANGES (OVERNIGHT)

US Dollar Outlook: Fed Taper Talk at Jackson Hole is Key

As such, US Dollar implied volatility readings have ticked higher to reflect event risk that surrounds the Jackson Hole Symposium set for kickoff on Thursday, 26 August. Traders will likely be on the edge of their seats trying to gauge the relatively hawkish or dovish lean conveyed by FOMC officials, like St. Louis Fed President James Bullard and Dallas Fed President Robert Kaplan, who are due to speak tomorrow. Nevertheless, it may be more prudent to await commentary from Federal Reserve Chair Powell during his speech on economic outlook scheduled for Friday, 27 August at 14:00 GMT before committing to a longer-term directional bias for the US Dollar.

Keep Reading – Gold Price Outlook: XAU/USD Mired by Fed Symposium Risk

— Written by Rich Dvorak, Analyst for DailyFX.com

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

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