The US Dollar advanced broadly on Monday. Souring risk appetite largely explains the bid beneath top safe-haven currencies and latest boost to USD price action. This largely follows a breakdown in major stock indices. It appears that market sentiment is deteriorating primarily on the back of mounting COVID-19 cases globally and fading optimism for a fiscal stimulus deal. Not to mention, with a barrage of equity earnings on tap this week, and the November 2020 election right around the corner, traders could be unwinding risk exposure in light of heightened uncertainty.

US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (19 JUN TO 26 OCT 2020)

Chart by @RichDvorakFX created using TradingView

The collision of key macro risk drivers this week might exacerbate US Dollar volatility and contribute to lacking a conviction for a directional bias. That said, there could be potential for the DXY Index to continue oscillating around its 50-day simple moving average until clarity emerges after the US election.

If risk aversion gains traction, however, US Dollar bulls could attempt to eclipse last week’s high and make a push toward September’s top. On the other hand, breaching last week’s low might increase the potential for USD price action to extend its bearish slide back toward multi-year lows, but this scenario seems less likely with the broader US Dollar bouncing off its lower Bollinger Band.

USD PRICE OUTLOOK: US DOLLAR IMPLIED VOLATILITY TRADING RANGES (1-WEEK)

Yet, according to the latest US Dollar implied volatility readings, USD price action is expected to be relatively tame. US Dollar one-week implied volatility readings look relatively in-line with their respective 20-day averages and seem muted when ranked on a 5-year percentile basis as well. This highlights potential for trader complacency and larger-than-expected moves across major currency pairs if volatility accelerates on the back of fundamental catalysts noted above.

Also worth mentioning, the DailyFX Economic Calendar details several other high-impact data releases and risk events on the docket this week with potential of contributing to US Dollar volatility more broadly. EUR/USD price action might swing violently in response to the scheduled European Central Bank rate decision. GBP/USD could steal the spotlight as the latest Brexit headlines cross-market wires. USD/JPY and AUD/USD both look susceptible to sizable reactions this week as well with upcoming inflation reports in focus. Options-implied trading ranges are calculated using 1-standard deviation (i.e. 68% statistical probability price action is contained within the implied trading range over the specified time frame).