Volatility Prices are High but Currencies Quiet - Someone's Wrong
Video summary: Forex volatility expectations remain elevated--particularly in the Yen--yet currencies are very quiet. Someone's wrong, and the next market moves will be pivotal.
Past performance is not indicative of future results, but our back and forward-tests show that our volatility-friendly Breakout2 trading strategy tends to do well if volatility prices are elevated and continue hitting fresh highs.
On Monday we made the case that breakout trading was especially attractive on Japanese Yen pairs given that these volatility expectations were so high, but that has unfortunately not worked in our favor.
The key question is simple: are FX Options traders correct in paying significant premiums for Japanese Yen volatility, or are spot traders correct in keeping the USDJPY below ¥100 and the Yen mostly range-bound? It's a bit of a ridiculous question since they're almost certainly the same groups of traders, but something's got to give.
Either reality meets expectations, or we're entering a period of broad consolidation across the JPY and major currencies. The answer to said question has obvious ramifications on our trade setups and biases.
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