Euro Looks at Key Risk - Here is What We’re Watching
- High volatility prices keep us focused on our Breakout2 trading strategy
High volatility prices warn that the Euro, US Dollar, and other major currencies will see big moves in the week ahead. Here’s what we’re watching.
A highly-anticipated US Nonfarm Payrolls report tops foreseeable event risk this week, while ongoing uncertainty surrounding Greek financial assistance represents a substantial concern for the Euro.
Focus will be on the Euro/US Dollar exchange rate as it fails at key resistance and trades close to potentially pivotal support near $1.0760—a break below would lead us to watch for further weakness. And indeed EUR volatility prices in particular trade near multi-year highs as traders brace for the unexpected out of Greece. The potential for a major breakdown keeps us on the defensive until further notice.
Forex Volatility Prices Trade Higher on Key Week of Economic Event Risk
Data source: Bloomberg, DailyFX Calculations
Our trading strategy biases are mostly unchanged from last week as high volatility prices keep focus on our Breakout2 trading strategy. Yet it’s critical to note that things can change very rapidly—particularly in the Euro. Traders should limit trading leverage given clear market uncertainty.
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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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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.
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