- A big week for forex markets has led a surge in volatility expectations
- Past performance not indicative of future results, but two of our strategies have historically done well in similar market conditions
- We're looking to trade the US Dollar higher via these trading systems
DailyFX PLUS System Trading Signals – A continued build in forex volatility prices promises big moves in US Dollar pairs through the week ahead, and indeed we believe several high-volatility strategies may outperform.
The US Dollar has shown early signs of a potential break higher across the board, and indeed we think that top-tier forex economic event risk may be enough to force the Dollar out of its range.
We can see traders positioning for big moves via FX volatility prices; the 1-week DailyFX Volatility Index has surged, while the longer-dated 1-month and 3-month measures have also hit multi-month peaks.
Forex Volatility Prices have Surged Ahead of a Critical Week for FX Markets
Source: OTC FX Options Prices from Bloomberg; DailyFX Calculations
Past performance is not indicative of future results, but the Momentum2 system has done well in key US Dollar pairs as of late and a pickup in volatility could likewise boost performance.
We have not traded Breakout2 for some time because of a lull in forex market volatility, but early signs of turnaround in market conditions suggest it could likewise outperform in AUD pairs in particular.
For other pairs we’ll stick to what has worked as of late, but a bigger move in vols would make us change our biases on other US Dollar pairs as well. Sign up for e-mail updates via my distribution list for any updates.
DailyFX Individual Currency Pair Conditions and Trading Strategy Bias
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--- 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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