We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
GBP/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Mixed
Gold
Bearish
Oil - US Crude
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Bitcoin
Mixed
More View more
Real Time News
  • Bank of Korea's Lee: It is possible South Korean GDP will contract in the first quarter, still have room to take actions if needed. Have unconventional tools to some degree -BBG
  • Bank of Korea's Lee: Two members opposed today's decision to hold rates -BBG
  • The #Euro may be close to resuming the downtrend against the US Dollar after managing a shallow recovery from support just below the 1.08 figure. Get your $EUR market update from @IlyaSpivak here: https://t.co/WJCO0fVagR https://t.co/ytCj6HqOVE
  • Bank of Korea's Governor Lee: Coronavirus outbreak affecting consumption and exports. Latest GDP view is based on virus peaking in March. Negative virus impact likely to be concentrated in 1Q -BBG
  • #Brazil benchmark equity index #Ibovespa suffered its biggest one-day decline since May 2017 and broke a 2-year uptrend after news broke that Latin America's largest country reported its first case of #Covid_19. It may be a painful session ahead when local markets open. https://t.co/YFLJD1gCVs
  • Bank of Japan's Kataoka: It is appropriate for the central bank to lower interest rates, BoJ should strengthen forward guidance. Coordination with fiscal policy very important -BBG
  • Looking at my majors-based #Yen index, #JPY could have quite the room to rally on average if there is a deeper turn in equities. The currency has still largely been consolidating since December on average and a break above the January and February highs could mark a bullish trend https://t.co/fIA4BeTmyf
  • The $JPY has lost out to a broadly resurgent US Dollar, with a clearly dwindling band of Yen bulls left to hope that the most recent rise has become overextended. Get your market update from @DavidCottleFX here:https://t.co/7Ndm5jiOi7 https://t.co/nP50B7d4yi
  • The double-edged sword of globalization: Pro: Hyper interconnectedness means everything is transmitted far more quickly. Con: Hyper interconnectedness means everything is transmitted far more quickly.
  • China reports 433 additional #coronavirus cases on February 26 which brings total to 78,497. 29 deaths were also reported bringing total fatalities to 2,744 -BBG
Potential US Dollar Reversal Calls for Breakout and Trend Trading in Week Ahead

Potential US Dollar Reversal Calls for Breakout and Trend Trading in Week Ahead

2011-02-07 16:12:00
David Rodriguez, Head of Product
Share:

Market Conditions Summary

A significant US Dollar rebound suggests we may be at a potential turning point for key US Dollar trading pairs, pointing to volatile and eventful trading conditions in the week ahead.

DailyFX+ System Trading Signals Fast-moving systems such as Momentum2 and Breakout2 saw strong performance through the past 7 days of trading, benefiting from pronounced moves in US Dollar pairs and other key currencies. Volatility expectations have dropped noticeably as the European Central Bank interest rate decision and the US Nonfarm Payrolls report have come and gone. Yet this hardly guarantees volatility will slow in the days ahead as we are arguably at a potential turning point for the Greenback. We favor Breakout2 and Momentum2 on most currency pairs in the days ahead. Slower-moving Momentum1 could falter unless we see pronounced price trends across the board, while Range1 and Range2 strategies look attractive only on key range-bound currency pairs.

Potential_US_Dollar_Reversal_Calls_for_Breakout_and_Trend_Trading_in_Week_Ahead_body_Picture_1.png, Potential US Dollar Reversal Calls for Breakout and Trend Trading in Week Ahead

To gain a greater understanding of all six trading systems, view my recent presentation on SSI and the trading signals on our FXCM Digital Expo page.

DailyFX Individual Currency Pair Conditions Summary

Potential_US_Dollar_Reversal_Calls_for_Breakout_and_Trend_Trading_in_Week_Ahead_body_Picture_2.png, Potential US Dollar Reversal Calls for Breakout and Trend Trading in Week Ahead

Volatility expectations have dropped near their lowest in quite some time. Yet much the same could have been said just two weeks ago, and we have since seen sharp moves across major currencies through that stretch. We rarely want to position ourselves against FX Options market volatility expectations. Yet they seem relatively underpriced given the possibility we may be near an important turning point in pairs such as the Euro/US Dollar.

Potential_US_Dollar_Reversal_Calls_for_Breakout_and_Trend_Trading_in_Week_Ahead_body_Picture_3.png, Potential US Dollar Reversal Calls for Breakout and Trend Trading in Week Ahead

Benchmark Trading Systems

7 days

30 days

90 days

365 days

Range Strategy

$886.89

$869.02

$873.46

-$535.75

Trend Strategy

-$985.68

-$1,867.60

-$3,039.83

-$4,460.70

Breakout Strategy

$866.27

-$1,876.97

-$53.87

-$1,559.37

Potential_US_Dollar_Reversal_Calls_for_Breakout_and_Trend_Trading_in_Week_Ahead_body_Picture_4.png, Potential US Dollar Reversal Calls for Breakout and Trend Trading in Week Ahead

Data and Backtest Results Generated using FXCM Strategy Trader

Range and Breakout strategies saw strong performance while Trend suffered, as the benchmark Moving Average Crossover system remains short USD. A true reversal would likely hurt Trend systems further while benefiting Channel Breakout and Range systems accordingly.

Written by David Rodríguez, Quantitative Strategist for DailyFX.com, drodriguez@dailyfx.com

To be added to this author’s distribution list, send an e-mail subject line “Distribution list” to drodriguez@dailyfx.com

Definitions

Range Strategy – The benchmark range trading system shows the hypothetical performance of a simple Relative Strength Index strategy on 60-minute EURUSD, GBPUSD, USDJPY, USDCHF, USDCAD, AUDUSD, and NZDUSD pairs. It sells when the 14-period RSI falls below 70 and buys when it crosses above 30. No other trading rules are used. Hypothetical results are generated using FXCM Strategy Trader.

Trend Strategy – The benchmark trend trading system shows the hypothetical performance of a simple Moving Average Crossover strategy on 60-minute EURUSD, GBPUSD, USDJPY, USDCHF, USDCAD, AUDUSD, and NZDUSD pairs. It buys the currency pair when the 50-period Simple Moving Average crosses above the 100-period and 200-period averages. It sells when the 50-period crosses below the 100-period and 200-period averages. No other trading rules are used.

Breakout Strategy – The benchmark breakout trading system shows the hypothetical performance of a simple Channel Breakout strategy on 60-minute EURUSD, GBPUSD, USDJPY, USDCHF, USDCAD, AUDUSD, and NZDUSD pairs. It will set a buy order at the highest high of the previous 20 bars plus one pip and a sell order at the lowest low of the previous 20 bars minus one pip. No other trading rules are used.

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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.