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US Dollar Likely to Fall Further - What Trades are we Watching?

US Dollar Likely to Fall Further - What Trades are we Watching?

2014-02-17 16:15:00
David Rodriguez, Head of Product
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- US Dollar at risk of further declines as S&P 500 surges

- Forex volatility prices have tumbled, putting pressure on USD

- Our trading biases favor selling into Dollar bounces

The US Dollar is at risk of further declines as a surge in the S&P 500 leaves the safe-haven currency out of favor. Which trades are we watching?

Nine-consecutive daily declines leave the Dow Jones FXCM Dollar Index at potentially critical support, but clearly one-sided price action likewise suggests that the trend is now definitively lower. Thus we remain focused on several key technical levels and potential trade setups.

Dow Jones FXCM Dollar Index Falls 9 Consecutive Days

forex_trading_strategy_selling_into_US_Dollar_weakness_body_Picture_1.png, US Dollar Likely to Fall Further - What Trades are we Watching?

Chart prepared by Jamie Saettele, CMT using Marketscope 2.0 – original source is here.

Our Senior Strategist highlights the fact that the EURUSD is at critical resistance and the USDJPY is at a similarly important price floor. A major US Dollar breakdown seems unlikely given a sharp drop in volatility prices (see chart below). Yet we can’t rule it out, and indeed we generally favor using our proprietary Momentum2 trading strategy for US Dollar-short opportunities.

We’ll keep a close eye on the US Dollar against the Euro, Japanese Yen, and other counterparts for trading opportunities. Take a look at full strategy preferences below and sign up for future e-mail updates via my distribution list.

Forex Volatility Prices Continue Lower, Favoring slow Price Action and USD Weakness

forex_trading_strategy_selling_into_US_Dollar_weakness_body_Picture_2.png, US Dollar Likely to Fall Further - What Trades are we Watching?

Source: OTC FX Options Prices from Bloomberg; DailyFX Calculations

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

forex_trading_strategy_selling_into_US_Dollar_weakness_body_Picture_3.png, US Dollar Likely to Fall Further - What Trades are we Watching?forex_trading_strategy_selling_into_US_Dollar_weakness_body_Picture_4.png, US Dollar Likely to Fall Further - What Trades are we Watching?

Automate our SSI-based trading strategies via Mirror Trader free of charge

--- 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

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.

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