Forex Market Conditions Unexpectedly Shift, Strategy Preferences Change

Given today’s breakouts in the Euro/US Dollar, US/Dollar Japanese Yen and other key currency pairs, our bias has subsequently shifted towards Momentum-based signals. Yet the possibility that currencies may once again return to tight trading ranges remains, and we caution against placing too much weight on any one trade.

Forex Market Conditions Summary

Forex Trading Automated Systems Outlook

DailyFX+ System Trading Signals – Market conditions have proven especially challenging through recent trade, and few of our strategies have actually turned a profit. Momentum1, Momentum2, and Breakout2 systems were initially well-positioned to take advantage of major USD and JPY moves, but sharp retracements clearly hurt the viability of said trades. Momentum1 and Breakout2 strategies remain long the USD and JPY against key counterparts, but we frankly have little confidence in the viability of said trades. Of particular concern is the fact that the Euro has been unable to break below its established lows.

We are subsequently faced with the difficult task of choosing between historically profitable Momentum and Breakout systems and arguably more timely Range strategies. Our individual currency pairs all seemed primed for range trading, but we are reminded that range strategies offer relatively poor risk/reward. That being said, we can’t ignore that volatility expectations have fallen substantially through recent trade, and it seems that we will have to increasingly watch for attractive range trading opportunities. We will update our strategy preference outlook if this situation changes throughout the current trading week.

DailyFX+ Forex Market Conditions Outlook

NOTE: Data has once again been changed. Due to the ineffectiveness of the 30-day horizon, we are returning to the original 90-day time horizon.

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 30 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 30 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.

Strategy – 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.

The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FOREX CAPITAL MARKETS, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. FOREX CAPITAL MARKETS, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FOREX CAPITAL MARKETS, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.