We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Mixed
GBP/USD
Bearish
USD/JPY
Bullish
Gold
Bullish
Oil - US Crude
Bullish
Bitcoin
Mixed
More View more
Real Time News
  • LIVE NOW: Join Technical Strategist @MBForex to review the setups he's tracking into the final full week of 2019 trade! https://t.co/dFw88WP8eH
  • Join @JWagnerFXTrader 's #webinar at 9:30 AM ET/2:30 PM GMT at the US market opening bell. Register here: https://t.co/9pXwJzGj54 https://t.co/RTJ4FX2UNH
  • Weekly Strategy Webinar starting in 5min on DailyFX! https://t.co/RgnsklZ2Gl
  • RT @IHSMarkitPMI: Flash UK Composite Output PMI falls to near three-and-a-half-year low in December (48.5; 49.3 - Nov). Notably, manufactur…
  • 32-day repo offering oversubscribed; NY Fed accepts $50 billion of $54.25 billion bids submitted $USD trading near session lows
  • RT @bespokeinvest: Huge breakouts last week across the globe. Pretty much all of the major US and country index ETFs are in solid uptrends…
  • #DidYouKnow traders generally prefer using candlestick charts for day-trading because they offer an enjoyable visual perception of price. Find out how you can utilize it in your trading strategy here: https://t.co/yFn12QgmxO https://t.co/Lc0NfzrjNp
  • Brexit Bill to be bought before Parliament on Friday #gbp #sterling #brexit @DailyFXTeam
  • Join @MBForex 's at 8:30 AM ET/1:30 PM GMT for his weekly #scalping #webinar Register here: https://t.co/VAnAfZU02T https://t.co/PJlUTtq3ed
  • #DidYouKnow crude #oil is a natural resource that differs in composition depending on its location. Find out more crude oil facts from @WVenketas here: https://t.co/Ssp486xz2J #OOTT #CommoditieswithDailyFX https://t.co/zhkg96pyWo
Dollar Surges, but Two Key Risks Warn of Euro Bounce

Dollar Surges, but Two Key Risks Warn of Euro Bounce

2014-07-22 15:30:00
David Rodriguez, Head of Business Development
Share:

- The US Dollar trades at key highs, but we see two key risks for the Greenback

- Extreme positioning and low FX volatility support case for Dollar pullback

- Strategy remains to trade major support and resistance levels on big pairs

The US Dollar trades at yearly highs versus the Euro and is strengthening versus other major counterparts, but these two key factors favor a Dollar pullback.

Put simply, there are two key factors against a major Dollar break higher versus the Euro at these levels.

First: current market conditions warn that few traders are positioning or envisioning a major USD move. In fact our DailyFX Volatility Indices, which track prices paid/received on FX options, remain near record-lows. No one is betting on or hedging against major Dollar moves.

Short-Term Forex Volatility Expectations Continue to Trade near Record Lows

Dollar Surges, but Two Key Risks Warn of Euro Bounce

Data source: Bloomberg, DailyFX Calculations

Second and just as importantly: we’re seeing important signs that FX positioning and sentiment have become very stretched. Recent futures positioning data shows that large speculators are their most short EURUSD since it traded above $1.30 through mid-2013. Our retail speculator-based trader sample is likewise at its most stretched since the same lows, and the confluence warns of a potentially significant turn.

Retail FX Speculators are their Most Net-Long EURUSD Since May, 2013

Dollar Surges, but Two Key Risks Warn of Euro Bounce

Source: FXCM Retail FX Positioning Data, Prepared by David Rodriguez.

These two factors are no guarantee that price will turn. Yet we trade on probabilities: the coincidence of key warnings suggests that US Dollar pairs may stick to broad trading ranges.

Thus from a trading perspective we’ll look to major support and resistance to hold and perhaps get short the US Dollar versus major counterparts. For the Euro, our Senior Strategist notes that a close below $1.3460 would point to a much more substantial breakdown. Absent such a break however, our focus remains on a EURUSD bounce.

See the table below for full rundown on a per-currency pair basis and keep track of changing conditions with future e-mail updates via my distribution list.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

Dollar Surges, but Two Key Risks Warn of Euro BounceDollar Surges, but Two Key Risks Warn of Euro Bounce

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.

DISCLOSURES

News & Analysis at your fingertips.