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US Dollar at Key Risk - Here are Levels to Watch

US Dollar at Key Risk - Here are Levels to Watch

2015-04-06 15:40:00
David Rodriguez, Head of Product
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- US Dollar trades near potentially pivotal levels

- Critical to watch Euro/US Dollar price action near $1.10, USDJPY ¥119.

- Potential for trend change favors our Momentum2 trading strategy

The US Dollar trades near potentially pivotal support versus the Euro and Japanese Yen. Whether or not the Dollar continues higher depends on key reactions.

A sharply disappointing US Nonfarm Payrolls report forced the Dollar lower across the board and leaves the Euro/US Dollar rate near key multi-month highs. And indeed, a notable deterioration in domestic interest rate forecasts leaves the Dollar at risk of continued weakness.

Given its recent pace of declines, it’s entirely possible that the US Dollar has turned the corner and could trade to further lows across the board. Ultimately, however, we believe that it may take a sustained Euro/US Dollar break above $1.10 to force a larger decline.

Forex Volatility Prices Pull Back as Market Tensions Recede, but Risks Remain

US Dollar at Key Risk - Here are Levels to Watch

Data source: Bloomberg, DailyFX Calculations

Our trading strategy biases are somewhat unclear as traders keep the USD near key support levels versus the Euro and Yen. Ultimately the potential for trend change leaves us in favor of our Momentum2 trading strategy. Past performance is not indicative of future results, but this trading system has often done well in times of sustained trend reversals.

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DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

US Dollar at Key Risk - Here are Levels to WatchUS Dollar at Key Risk - Here are Levels to Watch

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

Understand the Breakout2 Trading System via our previous article

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Trade with strong trends via our Momentum1 Trading System

Use our counter-trend Range2 Trading system

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

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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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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