IMF GDP Outlook & Fed Cut Odds

US DOLLAR CURRENCY VOLATILITY EYES IMF WORLD ECONOMIC OUTLOOK & FED RATE CUT ODDS

  • The US Dollar was able to stage a rebound to start the week as the greenback catches bid at its 50-day simple moving average
  • USD price action stands to swing in response to the latest update on the IMF”s global growth outlook as well as changes to FOMC rate cut bets following last week’s trade talks
  • For comprehensive fundamental and technical insight on the US Dollar, download our free 4Q-2019 Forecasts and Trading Guides

The US Dollar is starting the week on its front foot with the world’s reserve currency attempting to recover recent downside. USD price action has potential to further extend its rebound considering the IMF’s World Economic Outlook update is slated for release early Tuesday. This is due to expectations for the IMF to slash its global GDP growth outlook once again, which could spur demand for safe haven currencies like the US Dollar.

I noted this past July when the most recent IMF World Economic Outlook report was published that the US Dollar could rise in response to sluggish GDP growth estimates. The DXY Index – a popular basket of major US Dollar currency pairs – has climbed well over 1% since then.

US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (APRIL 17, 2019 TO OCTOBER 14, 2019)

Chart created by @RichDvorakFX with TradingView

USD price action found buoyancy at its 50-day simple moving average, which I mentioned was a strong possibility in Friday’s US Dollar price volatility report. US Dollar bulls will likely continue to look to this technical indicator to keep the greenback afloat going forward. Below this area, the 38.2% Fibonacci retracement level of the US Dollar’s trading range since late June comes into focus.

Conversely, confluent resistance posed by the 23.6% Fib and 20-day simple moving average could stymie a rebound in the US Dollar.

Check out this US Dollar Technical Forecast: EUR/USD, GBP/USD, AUD/USD, USD/CAD.

FED INTEREST RATE CHANGE PROBABILITIES (OCTOBER 2019)

FOMC Interest Rate Cut Expectations Price Chart October 2019

According to the latest overnight swaps pricing, rate traders are expecting a 70.8% probability that the Federal Reserve cuts interest rates later this month. This compares to the 82.2% probability priced in by markets early last week. With the US-China trade war taking a turn for the better following last Friday’s phase 1 trade agreement supposedly reached, the Fed could have more wiggle room to be patient with future monetary policy decisions rather than cut rates aggressively to insure against downside risks. In turn, the US Dollar could be provided with a strong tailwind if Fed rate cut expectations recede further in response to this development.

US DOLLAR IMPLIED VOLATILITY & TRADING RANGES (OVERNIGHT)

US Dollar Implied Volatility Trading Ranges

GBPUSD is expected to be the most volatile major US Dollar currency pair during Tuesday’s trading session with an overnight implied volatility of 17.2% with the latest Brexit developments front and center. On balance, overnight US Dollar implied volatility is roughly in line with recent readings judging by 20-day averages and 12-month percentile rankings across the major USD currency pairs. The DailyFX Economic Calendar lists high-impact economic data releases and event risk on deck, which typically serve as fundamental catalysts that spark currency volatility.

US DOLLAR RISK REVERSALS (OVERNIGHT)

US Dollar Risk Reversal

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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