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US Dollar Remains an Attractive Buy, but Only at These Price Levels

US Dollar Remains an Attractive Buy, but Only at These Price Levels

2014-08-04 15:30:00
David Rodriguez, Head of Product
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- US Dollar poised to hit fresh highs against major counterparts

- Reaction of DJ FXCM Dollar Index at key resistance is important warning

- Pullback in FX volatility prices suggests price action may slow

The US Dollar looks on pace to hit fresh highs versus the Euro and British Pound. Yet we’re cautious on buying until we hit these price levels.

Traders sent the Dollar to fresh highs across the board, and the Dow Jones FXCM Dollar Index now trades at important price resistance levels. The fact that the USDOLLAR has pulled back at the confluence of its 52-week moving average and 50% retracement of its peak-to-trough decline suggests that the USD may consolidate before its next push higher. And indeed we’re cautious of buying the Greenback until we see some price consolidation.

DJ FXCM Dollar Index Rallies Sharply, Encounters Key Resistance

US Dollar Remains an Attractive Buy, but Only at These Price Levels

Source: FXCM Trading Station Desktop, Prepared by David Rodriguez.

Forex volatility remains another key factor which warns against chasing Dollar gains at these prices. We noted last week that traders had priced in an important jump in USD price moves ahead of a key week of event risk. Yet those same markets now show one-week volatility prices are once again near record-lows, and it seems traders are positioned for price consolidation before the next major Greenback moves.

Forex Volatility Prices Drop, Suggests Slower US Dollar Moves Ahead

US Dollar Remains an Attractive Buy, but Only at These Price Levels

Data source: Bloomberg, DailyFX Calculations

We are thus looking at key price support levels for the US Dollar versus the Euro and the British Pound. For the EURUSD our Strategist notes a key potential inflection level at $1.3485, and in our opinion selling remains attractive as long as the pair remains below the $1.3500 mark.

In the GBPUSD we’re keeping a close eye on how price reacts near current lows, as the $1.6820 level likewise marks the February high and key congestion. As long as price remains below potentially pivotal resistance at $1.7000, we remain in favor of GBP-short positions.

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

US Dollar Remains an Attractive Buy, but Only at These Price LevelsUS Dollar Remains an Attractive Buy, but Only at These Price Levels

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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