Forex Strategy Outlook: US Dollar Set to Fall Further as Vols Tumble
DailyFX Individual Currency Pair Conditions and Trading Strategy Bias
DailyFX PLUS System Trading Signals –Our trend and breakout trading strategies have bet aggressively against the US Dollar through recent trade, and the current levels of volatility expectations favor further USD weakness into the days ahead. We like trading the US Dollar lower across the board and have set our current strategy biases accordingly. Noteworthy exceptions may include the USDCAD, which trades quite close to significant support and stands a chance at an important bounce.
Overall we have been calling for an important EURUSD bounce (and USD pullback) for some time now. If the Euro trades above its January high of $1.3076, we see little in the way of significant resistance until much higher.
Volatility expectations continue to fall noticeably, giving clear signal that few are betting on major FX moves into the week ahead. Notably low vols also give a directional bias; during times of complacency, we might expect the safe-haven US Dollar to do poorly against the risk-friendly Euro and Australian Dollar.
Given where vols and price have started the week, we think the US Dollar could trade lower into Friday’s close.
--- 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 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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