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US Dollar Offers Range Trading Opportunities in Week Ahead

By , Quantitative Strategist
16 April 2012 19:45 GMT

The US Dollar (ticker: USDOLLAR) remains within key support and resistance levels, and we favor range trading the Euro/US Dollar and other currencies through the week ahead.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

forex_strategy_forecast_body_Picture_1.png, US Dollar Offers Range Trading Opportunities in Week Ahead

DailyFX PLUS System Trading SignalsThe US Dollar (ticker: USDOLLAR) has remained in an exceedingly choppy range against the Euro and other key currencies, and such directionless price action makes for difficult trading conditions. Forex options market volatility expectations remain low, and it seems that most believe the Euro/US Dollar and other key pairs will stick to their recent ranges.

Indeed, it seems likely that the US Dollar broadly sticks to its recent consolidation ranges amidst such low volatility, and we will position ourselves for range trading in the days ahead. What could change so that we shift our biases?

Euro/US Dollar resistance is well-defined at recent range highs of $1.32, while spike-lows at the $1.30 mark likewise underline support. Similarly, the Dow Jones FXCM Dollar Index remains stuck within a 9,900 to 10,050 range. The next market moves could be big if any of these levels break. But holding between these support and resistance levels would leave our range trading bias intact.

Market Conditions:

Forex options market volatility expectations remain very low, and we have little choice but to favor range trading amidst such limited forecasts for major moves. We will need to see

forex_strategy_forecast_body_Picture_2.png, US Dollar Offers Range Trading Opportunities in Week Ahead

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

To contact David, e-mail drodriguez@dailyfx.com

To be added to David’s e-mail distribution list for this and other reports, e-mail subject line “Distribution List” to drodriguez@dailyfx.com

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.

Bias – 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.

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16 April 2012 19:45 GMT