During last weeks, we have seen a significant increase in USD volatility due to several reasons.
The main factor was the contradictory stance used by the U.S Federal Reserve regarding the future path of interest rates. In addition, fears of a potential U.K exit from the EU area, has driven investors towards safe haven assets. It is important to note that the U.S Dollar remain a primary safe haven in the FX market given its primary reserve role.
Therefore, if Brexit materialize, a rally in the Greenback is likely along with the Japanese currency.
Getting back to interest rates speculation, Chairwoman Janet Yellen was very clear during June monetary policy meeting, and refrained from any rate hike in the near-term as general economic conditions still unstable. Moreover, Yellen said that any potential move in rates remain data dependent.
It is clear by now, that investors pushed back their rates hike expectations to at least the end of this year as July probability has fallen to 10.0% only while August is at 29.8% for the time being.
In the other side, while been asked about the U.K referendum yesterday, she replied:
"There could be a period of financial market volatility that would negatively affect financial conditions and U.S outlook"
Now let’s have a look at the technical outlook of the Greenback.
The Dollar keep fighting for a clear direction in the short-term as prices remain stuck inside a wide range between 96.00 level in the upside and 93.30 in the downside.
However, when looking at the biggest picture, we can see that the index lost its bullish momentum as prices stalled and failed two consecutive times to overtake 100.50resistance level, which keeps a potential reversal to the downside possible. Meanwhile, traders should wait for a weekly close below 93.00/92.60 zone to confirm the double top formation seen from the highs.
Recently, the Dollar managed to bounce from 93.30 support level, which represents the 61.8% retracement from 91.90 low, but this bounce is likely to be short-lived, as the upside potential remain limited below 96.00 zone.
To conclude, the U.S Dollar is trading inside a big range but looking at the recent price action, we believe that the index is likely to remain under pressure in the next days as far as 96.00 peak is intact.
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