Summary: The US Dollar (ticker: USDOLLAR) continues to trade sharply lower against the Euro and other major currencies. We favor selling into the overall USD downtrend amidst strong momentum across all pairs.
DailyFX Individual Currency Pair Conditions and Trading Strategy Bias
DailyFX PLUS System Trading Signals –The US Dollar (ticker: USDOLLAR) continues to trade decisively lower against the Euro, British Pound, and other major counterparts. We see scope for continued USD weakness and EURUSD gains.
Our strategy bias is thus mostly unchanged since last week when we favored selling into US Dollar downtrends, and indeed we’ve seen our trend-based “Tidal Shift”/Momentum2 strategy perform well across USD pairs. We see little reason to change our overall trading biases as market conditions are roughly unchanged.
FX options traders continue to predict exceedingly small currency moves across the board, and the safe-haven US Dollar will often do poorly through quiet market conditions.
Studies of real trader performance figures likewise show that low-volatility strategies such as “Congestion Opportunities”/Range2 and benchmark Relative Strength Index trading systems can do well in low-volatility environments.
Our DailyFX Volatility Indices continue to show low volatility expectations across the board, and a relatively limited week for US Economic event risk gives little reason to expect major currency moves in the days ahead.
The Euro/US Dollar continues to trade near significant highs as the US Dow Jones Industrial Average hits multi-year peaks. Although correlations have weakened in recent months, we expect the US Dollar to do poorly amidst a broad upswing in global risky asset classes.
--- 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 90-day 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 90-day 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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