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Strategies Sell Euro on Post-Cyprus Tumbles - Good Trades?

Strategies Sell Euro on Post-Cyprus Tumbles - Good Trades?

2013-03-25 15:30:00
David Rodriguez, Head of Product
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Article Summary: Uncertainty reigns supreme as Cypriot headlines rock the Euro. Our sentiment-based strategies have sold EURUSD on big price swings—here’s what we think about those trades.

DailyFX PLUS System Trading Signals Uncertainty reigns supreme as the Euro surged to start the week only to break lower, and our trading bias for the US Dollar (ticker: USDOLLAR) remains fluid as we have little choice but to react to shifts in market conditions.

Our retail sentiment-based Momentum2 and volatility-friendly Breakout2 systems have both sold the recent Euro breakdown, but we’ll need to see a substantive break below December lows of $1.2880 to have real confidence in those trades.

Last week we wrote that the US Dollar actually stood to decline versus major counterparts as our proprietary positioning measures showed retail crowds were far too willing to buy. The sharp reversal in the Dollar’s fortune gives us clear reason for pause, however, and we may need to update our trading biases as conditions change.

We’ll focus on several sentiment-based Momentum2 trades on clearer trends such as the AUDUSD and GBPUSD, while we express caution at Breakout2 trades given fairly clear risk of continued choppiness in market conditions.

Japanese Yen currency pairs have previously been bright spots for our sentiment-based trading strategies, but market conditions into Japan’s fiscal year-end may make for unpredictable price moves. We may see trading opportunities to the downside—particularly for the Euro and US Dollar—but that may likewise depend on whether this is truly the start of a larger EUR breakdown.

DailyFX Forex Volatility Indices

forex_strartegy_outlook_us_dollar_long_positions_body_Picture_1.png, Strategies Sell Euro on Post-Cyprus Tumbles - Good Trades?

Forex market volatility prices have fallen to start the week, but given sharp market swings on news headlines we expect choppiness and sharp intraday price swings to continue.

View the table below to see our strategy preferences broken down by currency pair.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

forex_strartegy_outlook_us_dollar_long_positions_body_x0000_i1026.png, Strategies Sell Euro on Post-Cyprus Tumbles - Good Trades?forex_strartegy_outlook_us_dollar_long_positions_body_1a.png, Strategies Sell Euro on Post-Cyprus Tumbles - Good Trades?

View how to automate the high-volatility Breakout2 Trading System via our previous article and webinar recording.

Auto trade the trend reversal-trading Momentum2system via our previous article and webinar recording.

Trade with strong trends via our Momentum1 Trading System and view an archived webinar

Use our counter-trend Range2 Trading system and view an archived webinar guide on automation

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

To receive the Speculative Sentiment Index and other reports from this author via e-mail, sign up to David’s e-mail distribution list via this link.

Contact David via

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

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

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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.

http://www.dailyfx.com/forex/technical/trading_strategies/trading_strategies_explained/2013/03/05/range_trading_with_the_speculative_sentiment_index.html

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