The US Dollar extended its slide on Tuesday after erasing gains notched earlier in the session. US Dollar weakness was broad-based and seemed to largely follow the release of monthly CPI data. Even though the inflation report showed price pressures heating up across the US, markets seemed to largely overlook this due to the ‘transient’ narrative spun by FOMC officials. This was reflected by a decline in ten-year Treasury yields toward 1.6% and coincided with a weaker US Dollar. We discussed this bearish scenario in our weekly US Dollar fundamental forecast.

DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (24 DEC 2020 TO 13 APR 2021)

Chart by @RichDvorakFX created using TradingView

US Dollar bears were able to push the broader DXY Index down to fresh three-week lows near the 91.80-price level. This is an area of technical support highlighted by the 38.2% Fibonacci retracement of its year-to-date trading range. Failure by US Dollar bulls to maintain this level could bring to focus the 50-day simple moving average and February swing high as the next potential layer of support. Rebound attempts might struggle to overcome the negatively-sloped 200-day simple moving average.

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

NZD/USD price action could be worth keeping close tabs on during Wednesday’s trading session. This is considering NZD/USD is expected to be the most active major currency pair judging by its overnight implied volatility reading of 12.9%, which compares to its 20-day average of 9.9% and ranks in the top 80th percentile of measurements taken over the last 12-months. Potential for NZD/USD price volatility likely surrounds high-impact event risk due to the upcoming RBNZ rate decision. NZD/USD volatility also has potential to intensify around a scheduled speech from Fed Chair Jerome Powell.