• USD price action traded mixed on Wednesday and left the US Dollar Index largely unchanged
• US Dollar direction clouded as surging Treasury yields offset democratic sweep implications
• Developments in Washington, D.C. could exacerbate volatility and weigh on risk appetite

The US Dollar struggled to find clear direction during Wednesday’s trading session. USD price action was mixed across the board of major currency pairs with the US Dollar strengthening against the Yen and Sterling while weakening versus the Euro and Aussie. Choppiness looked largely driven by confirmation of a democratic sweep, a sharp rise in US Treasury yields, and disconcerting developments on Capitol Hill. On balance, the broader DXY Index finished roughly flat for the day.

DXY - US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (08 OCT 2020 TO 06 JAN 2021)

Chart by @RichDvorakFX created using TradingView

A daily candlestick chart of the US Dollar Index shows fresh two-year lows were notched by the Greenback on an intraday basis. USD price action seemed to face selling pressure on the back of reports that democrats were on pace to gain senate majority following the Georgia runoff election. US Dollar bears struggled to steer USD price action lower, however, due to headwinds from Treasury yields breaking out higher.

This helped the US Dollar Index erase initial downside. Unrest in Washington, D.C. as demonstrators storm the capitol in protest of certifying electoral college votes for president-elect Joe Biden elevated market uncertainty and made the short-term direction of the US Dollar even murkier.

That said, the standing bearish trend appears to remain solidly intact and hints that US Dollar weakness might linger more broadly. Struggles to sustain a broader rebound attempt has forged a MACD crossover, which likely serves as another indicator pointing in favor of US Dollar bears. On the other hand, potential for a bullish reversal could come back into play if the US Dollar Index can surmount its 20-day simple moving average.

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

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In the wake of senate runoff election results, US Dollar implied volatility readings have ticked lower, but still remain relatively perky amid noise on Capitol Hill. Though a smooth transfer of power is still widely expected, drama in D.C. has elevated market uncertainty nonetheless. To that end, if certifying electoral college votes is delayed further, it might encourage capital outflows from the United States and put downward pressure on USD price action. This could place greater reliance on the direction of Treasury yields as one potential bellwether to where the US Dollar heads next.