US Dollar Offers Range Trading Opportunities vs. Euro
The US Dollar (ticker: USDOLLAR) continues to hold critical support and remains below significant resistance. We believe the USD may continue to offer range trading opportunities against the Euro and other currencies in the week ahead.
DailyFX Individual Currency Pair Conditions and Trading Strategy Bias
DailyFX PLUS System Trading Signals –The US Dollar (ticker: USDOLLAR) remains in a tight range across the board, and exceedingly low volatility suggests that it may stick to a tight range against the Euro and other key counterparts.
Indeed, the Dow Jones FXCM Dollar Index remains coiled and a breakout seems increasingly likely. Yet a continued hold of support near 9900 and resistance at 10050-10127 leaves our range trading bias intact.
In terms of trading opportunities, the USDOLLAR itself looks likely to stick to said range while the Euro/US Dollar remains above $1.3000 and below $1.3300. We will stick to range trading these pairs until volatility shows that bigger moves are likely.
Otherwise, British Pound and Japanese Yen uptrends offer short-term momentum trades against the Euro, Australian Dollar, and New Zealand Dollar. We wait for stronger volatility before calling for Breakout trading.
Forex options market volatility expectations trade near pre-financial crisis lows. It is interesting to note that the S&P 500 Volatility Index nonetheless trades near the top of its year-to-date range—this may support our calls for trend trading the highly-correlated Australian and New Zealand Dollars. Yet we’ll need to see a bigger move in FX vols to shift our broader trading bias.
--- 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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