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US Dollar's Next Moves Uncertain - Watching these Trading Strategies

US Dollar's Next Moves Uncertain - Watching these Trading Strategies

2015-06-15 15:10:00
David Rodriguez, Head of Product
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- Risks remain to the downside as the Dow Jones FXCM Dollar Index trades within falling trend

- Japanese Yen remains a sell until this changes

- Our strategy-trading preference is roughly split between our Breakout2 and Momentum2 strategies

The US Dollar remains at risks as it continues to test lows versus major counterparts. Here are the strategies we’re watching cross key pairs.

It’s shaping up to be a make-or-break week for the Greenback as all eyes turn to a highly-anticipated US Federal Open Market Committee interest rate decision, and indeed it’s little exaggeration to claim that the contentious announcement could determine near-term direction for the US currency.

Another key market focus remains bailout negotiations between Greece and the Euro Working Group, and the combination of potential turmoil out of Europe along with the FOMC has sent 1-week volatility prices near their highest since January.

Forex Volatility Prices Pick up on Big Week of Economic Event Risk

US Dollar's Next Moves Uncertain - Watching these Trading Strategies

Data source: Bloomberg, DailyFX Calculations

Sign up for any future updates on market conditions via our e-mail distribution list.

Overall uncertainty makes it somewhat difficult to establish a firm strategy trading bias. On the one hand, high volatility prices would normally leave us in favor of our volatility-friendly Breakout2 trading system. Yet the caveat is that this system does not switch directions very quickly and may only do well if the US Dollar breaks down. Our Momentum2 trading system is more likely to do well on a sustained shift in overall trends.

Thus far the technical picture remains bearish for the US currency as it trades in a downward-sloping trend channel and just above key support. We look to the coming days to ultimately determine near-term direction.

US Dollar's Next Moves Uncertain - Watching these Trading Strategies

Source: TradingView, DailyFX

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

US Dollar's Next Moves Uncertain - Watching these Trading Strategies

Understand the Breakout2 Trading System via our previous article

Auto trade the trend reversal-trading Momentum2system via our previous article.

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

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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