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US Dollar Poised for Fresh Highs versus Euro as Volatility Surges

By , Quantitative Strategist
21 May 2012 14:30 GMT

The US Dollar (ticker: USDOLLAR) remains poised to trade to fresh highs against the Euro, Australian Dollar, British Pound, and other major counterparts as forex options market volatility expectations surge.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

forex_us_dollar_forecast_to_strengthen_strategies_body_Picture_1.png, US Dollar Poised for Fresh Highs versus Euro as Volatility Surges

DailyFX PLUS System Trading SignalsThe US Dollar (ticker: USDOLLAR) continues to surge to fresh 8-month highs, and elevated volatility expectations suggest that the USD may continue to trade to fresh peaks across the board.

Market conditions seem ideal for high-volatility breakout trading, and indeed our “Breakout Opportunities” and Breakout2 systems on the DailyFX PLUS Trading Signals seem primed to outperform through the coming weeks of trading. Past performance is not indicative of future results, but history shows that breakout strategies do well in times of high “Volatility Percentile” figures.

We will often further see safe-haven currencies such as the US Dollar and Japanese Yen do well in times of strong market uncertainty. And indeed our strategy biases imply that we expect the US Dollar will continue to trade to fresh highs.

Market Conditions:

Forex options market volatility expectations are currently at their highest levels since January, and the surge in our DailyFX Volatility Indices underlines the sharp shift in market conditions. Strong market moves seem likely to continue, and we’ve adjusted our forex trading strategy biases and currency forecasts accordingly.

forex_us_dollar_forecast_to_strengthen_strategies_body_Picture_2.png, US Dollar Poised for Fresh Highs versus Euro as Volatility Surges

--- 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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21 May 2012 14:30 GMT