The US Dollar (ticker: USDOLLAR) trades to fresh highs against the Euro and other forex counterparts, and high volatility expectations suggest the USD may continue to hit fresh highs (EURUSD lows).
DailyFX Individual Currency Pair Conditions and Trading Strategy Bias
DailyFX PLUS System Trading Signals –The US Dollar (ticker: USDOLLAR) has broken sharply higher against the Euro and other key counterparts, and the Dow Jones FXCM Dollar Index is currently challenging significant long-term trendline resistance. A simultaneous jump in forex options market volatility expectations suggests that this may be the start of much larger market moves, and indeed volatility-friendly Breakout strategies look attractive across the board.
Last week we favored of low-volatility range trading strategies, but market conditions have changed abruptly and we must change as well. Ongoing crises in the Euro Zone and Greece in particular leave the Euro at risk across the board. Indeed, we see fundamental reasons for which this may be the start of a much larger Euro breakdown.
In concrete terms this means that we favor DailyFX PLUS Trading Strategies “Breakout Opportunities” and “Tidal Shift”. Both systems stand to do well on strong price swings, and current volatility readings suggest market conditions will remain favorable.
Volatility expectations have broken out of their downtrend, and indeed it seems as though we may be entering a period of strong market moves. Our 3-month Volatility Index since February and March. A continued move would give us further confidence in our calls for high-volatility breakout trading.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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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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