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Forex Focus turns to Commodity Bloc on a Drop in Euro Volatility Risk

Forex Focus turns to Commodity Bloc on a Drop in Euro Volatility Risk

2015-07-13 15:35:00
David Rodriguez, Head of Product
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- 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

Forex Focus turns to Commodity Bloc on a Drop in Euro Volatility Risk

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

Forex Focus turns to Commodity Bloc on a Drop in Euro Volatility Risk

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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