Forex Strategy Outlook: Euro Range Against US Dollar Likely to Persist

Market Conditions Summary

Forex market volatility expectations have edged higher through the past week of trade, but relatively depressed absolute levels suggest that currencies will continue to see smaller moves in the week ahead. The Euro remains in a contained 200-point range against the US Dollar since June 14, and continued attempts at breakouts have been met with failure. As such, it seems that strategies that trade currency ranges should outperform through current market conditions.

That said, FX market conditions can and do change quite rapidly. Range trading strategies tend to do quite well in quiet market conditions but subsequently lose big when prices grow more volatile. Keep an eye on key barometers such as the S&P 500 to get a sense for relative stability in financial markets and subsequent implications for FX volatility.

DailyFX Volatility Indices

Forex Trading Automated Systems Outlook

DailyFX+ System Trading Signals – Perennial outperformer Breakout2 continues to see minor pullbacks through choppy price action, and the sharp drop in volatility expectations suggests that Range1 and Range2 may see somewhat of resurgence through slower price action. We have made little secret of the fact that Breakout2 offers some of the best risk/reward of any of our systems, but it likewise tends to lose/stay flat for extended periods of time on lower-volatility FX regimes. As such, we reluctantly say that traders should treat any such trades with a sense of caution until we see bigger currency volatility expectations.

It is worth noting that slower-moving price-following strategies such as Momentum2 and Momentum1 tend to do especially poorly in range trading environments. We warn against taking excessive leverage in said trades until we see further evidence that currencies can continue breaking major support and resistance levels amidst strong trends.

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.

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OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. The FXCM group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance contained in the trading signals, or in any accompanying chart analyses