Forex Focus turns to Commodity Bloc on a Drop in Euro Volatility Risk
- Market volatility risks drop considerably on Greek agreement with creditors
- US Dollar remains in control, steady uptrend
- High volatility in Commodity Bloc remains our focus via the Breakout2 trading system
Volatility prices have tumbled as an agreement between Greece and its creditors takes significant tail risk off of the table. We’re shifting trading biases accordingly.
The US Dollar has remained our favored trade across the board as clear market uncertainty fueled demand for the safe-haven currency. A sharp drop in volatility prices removes one fairly important pillar of support for the US currency, but a continued overnight rally suggests the Dollar isn’t done quite yet.
Forex Volatility Prices Drop Notably on Reduced Greek Risks, Focus turns to Commodity Bloc Pairs
Data source: Bloomberg, DailyFX Calculations
Thus our focus turns to US Dollar trades versus the Commodity Bloc—the Canadian, Australian, and New Zealand Dollars—as the Greenback hits fresh highs. And indeed our volatility-friendly Breakout2 remains attractive on a handful of currency pairs.
A key caveat is that our trading biases could change if we see a similar drop in Commodity Bloc volatility, but until that happens we’ll stick to our recent calls.
See the table below for full detail on market conditions and preferred trading strategies.
DailyFX Individual Currency Pair Conditions and Trading Strategy Bias
Understand the Breakout2 Trading System via our previous article
Auto trade the trend reversal-trading Momentum2 system 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
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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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