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US Dollar Downtrend Intact - We Like Selling

US Dollar Downtrend Intact - We Like Selling

David Rodriguez, Head of Product

Summary: The US Dollar (ticker: USDOLLAR) continues to trade sharply lower against the Euro and other major currencies. We favor selling into the overall USD downtrend amidst strong momentum across all pairs.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

forex_strategy_us_dollar_downtrend_body_Picture_1.png, US Dollar Downtrend Intact - We Like Selling

DailyFX PLUS System Trading SignalsThe US Dollar (ticker: USDOLLAR) continues to trade decisively lower against the Euro, British Pound, and other major counterparts. We see scope for continued USD weakness and EURUSD gains.

Our strategy bias is thus mostly unchanged since last week when we favored selling into US Dollar downtrends, and indeed we’ve seen our trend-based “Tidal Shift”/Momentum2 strategy perform well across USD pairs. We see little reason to change our overall trading biases as market conditions are roughly unchanged.

FX options traders continue to predict exceedingly small currency moves across the board, and the safe-haven US Dollar will often do poorly through quiet market conditions.

Studies of real trader performance figures likewise show that low-volatility strategies such as “Congestion Opportunities”/Range2 and benchmark Relative Strength Index trading systems can do well in low-volatility environments.

Market Conditions:

Our DailyFX Volatility Indices continue to show low volatility expectations across the board, and a relatively limited week for US Economic event risk gives little reason to expect major currency moves in the days ahead.

forex_strategy_us_dollar_downtrend_body_Picture_2.png, US Dollar Downtrend Intact - We Like Selling

The Euro/US Dollar continues to trade near significant highs as the US Dow Jones Industrial Average hits multi-year peaks. Although correlations have weakened in recent months, we expect the US Dollar to do poorly amidst a broad upswing in global risky asset classes.

forex_strategy_us_dollar_downtrend_body_Picture_3.png, US Dollar Downtrend Intact - We Like Selling

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

To receive the Speculative Sentiment Index and other reports from this author via e-mail, send a message with subject line “Distribution List” to drodriguez@dailyfx.com;

Contact David via

Twitter at http://www.twitter.com/DRodriguezFX

Facebook at http://www.Facebook.com/DRodriguezFX

Meet the DailyFX team in Las Vegas at the annual FXCM Traders Expo, November 2-4, 2012 at the Rio All Suite Hotel & Casino. For additional information regarding the schedule, workshops and accommodations, visit the FXCM Trading Expo website.

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 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.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES IS MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION.

OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. The FXCM group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance contained in the trading signals, or in any accompanying chart analyses.

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

DISCLOSURES