The US Dollar edged higher on Tuesday which largely reversed USD downside recorded the day prior. Correspondingly, it appears that the DXY US Dollar Index has found itself stuck in a short-term range roughly between 98.10-98.45 as traders await another catalyst to spark the US Dollar’s next major move. Markets sat on the edge of their seats Tuesday afternoon as US President Trump delivered a speech at the Economic Club of New York, though Trump’s remarks were anti-climactic on balance considering fresh details on a scheduled tariff hike on imported Chinese goods set to go into effect this December were expected but not delivered.

As such, attention now shifts to the back-end loaded Economic Calendar for upcoming event risk and data releases throughout the rest of the week. Central to USD price action over the coming days will be the market’s response to US inflation figures found in the October CPI report set to cross the wires Wednesday at 13:30 GMT. Also slated for Wednesday’s trading session will be commentary from Fed Chair Jerome Powell who will address the US Congressional Joint Economic Committee expected to kick off at 16:00 GMT.

US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (APRIL 12, 2019 TO NOVEMBER 12, 2019)

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Chart created by @RichDvorakFX with TradingView

I noted in yesterday’s US Dollar Price Volatility Report that USD price action faced an intimidating zone of technical resistance. This area of confluence – underpinned by the US Dollar Index’s 50-DMA near 98.25 – appears to have kept a lid on further upside progression so far.An extended retracement lower could be in the cards but the 100-day simple moving average and mid-point retracement of the US Dollar’s trading range since June 25 around the 97.75-98.00 price zone will look to keep the world’s reserve currency buoyed.

While the US Dollar stands to respond primarily to inflation data due for release Wednesday, there are several other high-impact developments expected that surround major USD counterparts. Specifically, USD/JPY, NZD/USD and EUR/USD price action comes into focus with Japan GDP data, an RBNZ rate review and Trump’s auto tariff decision deadline on deck.

FOMC RATE CUT EXPECTATIONS (SEPTEMBER 2020)

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The odds that the Fed will cut rates again next year is teetering around a near 50-50 split, which is down substantially from the 77.9% probability priced in on October 31. Effective Fed funds futures are currently pricing in a 55.4% probability for a FOMC rate cut by the central bank’s September 2020 meeting. It is noteworthy that the US Dollar recently whipsawed around remarks from Fed Chair Powell subsequent to the most recent FOMC rate decision.

Specifically, the US Dollar climbed following firmer language found in the Fed’s monetary policy press statement only to pivot lower after Powell stated that the central bank would ‘need to see a really significant rise in inflation’ before considering future interest rate hikes. That said, a hotter-than-expected reading on headline US inflation or core CPI could send the US Dollar rocketing higher.

US DOLLAR IMPLIED VOLATILITY & TRADING RANGES (OVERNIGHT)

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USD/JPY: Due to its relative sensitivity to changes in interest rate expectations, the direction of spot USD/JPY in response to upcoming US inflation data could lead the US Dollar’s broader direction. Moreover, USD/JPY volatility has potential to be exacerbated surrounding 3Q Japan GDP data expected Wednesday at 23:50 GMT. For further insight on US Dollar outlook, check out USD/JPY Chart Eyes Looming Reversal. Nevertheless, lukewarm USD/JPY overnight implied volatility of 4.8% estimates that spot prices will fluctuate between 108.72-109.27 with a 68% statistical probability.

EUR/USD: Keeping close tabs on EUR/USD will be essential over the coming days with an expected decision from the Trump administration on levying tariffs on autos and auto parts. The White House has previously delayed its Section 232 review process roughly 6-months ago, but auto tariff risk and trade war uncertainty will be front and center until a formal decision is announced. Alas, EUR/USD overnight implied volatility of 4.7%, which is below its 20-day average of 5.1% and ranks in the bottom 30th percentile of readings over the last 12-months, could be underpricing the risk that Trump targets EU auto exports with tariffs

NZD/USD: Likely taking the spotlight early Wednesday will be NZD/USD price action considering the RBNZ will deliver its latest monetary policy update. Consequently, the New Zealand Dollar is primed for heightened volatility with NZD/USD overnight implied volatility most recently clocked at 17.0%, which ranks in the top 99th percentile of readings over the last 12-months and compares to the 20-day average reading of 7.9%.