Forex Strategy Outlook: Range Strategies Attractive for Euro on Greek Bailout

Market Conditions Summary

Forex options market volatility expectations have leveled off near their lowest points in nearly two years, suggesting that major currencies will continue to see slow moves through the foreseeable future. The recently-announced financial aid package for Greece will likely depress Euro volatility in particular, as it removes a key source of uncertainty surrounding Euro Zone unity.

Yet other currencies such as the Japanese Yen continue setting new lows against key counterparts and leave our momentum trading bias roughly intact. Watch for danger of a return to rangebound markets in Euro pairs, while we suspect the Japanese Yen will continue setting fresh lows against major forex counterparts.

Forex Trading Automated Systems Outlook

DailyFX+ System Trading Signals – Our Momentum-based trading strategies have seen pullbacks as of late, getting chopped out on sharp swings in Euro currency pairs. Given volatility’s streaky nature, said choppiness warns that Momentum-based trading systems may continue to underperform through upcoming trade. Yet it is worth noting that JPY-based pairs continue to set fresh highs, and we see evidence of trends in other major currencies.

Our perpetual bias towards trading Breakout2 has somewhat waned given low volatility expectations, but as always the strategy stands to gain if financial market conditions suddenly deteriorate and currencies make large moves.

DailyFX+ Forex Market Conditions Outlook

Definitions

Volatility Percentile – The higher the number, the more likely we are to see strong movements in price. This number tells us where current implied volatility levels stand in relation to the past 90 days of trading. We have found that implied volatilities tend to remain very high or very low for extended periods of time. As such, it is helpful to know where the current implied volatility level stands in relation to its medium-term range.

Trend – This indicator measures trend intensity by telling us where price stands in relation to its 90 trading-day range. A very low number tells us that price is currently at or near monthly lows, while a higher number tells us that we are near the highs. A value at or near 50 percent tells us that we are at the middle of the currency pair’s monthly range.

Range High – 90-day closing high.

Range Low – 90-day closing low.

Last – Current market price.

Strategy – Based on the above criteria, we assign the more likely profitable strategy for any given currency pair. A highly volatile currency pair (Volatility Percentile very high) suggests that we should look to use Breakout strategies. More moderate volatility levels and strong Trend values make Momentum trades more attractive, while the lowest Vol Percentile and Trend indicator figures make Range Trading the more attractive strategy.