Recently rangebound forex trading markets have left our currency signals at somewhat of a disadvantage through recent trade, but continued volatility suggests that short-term ranges could give way to sharper breakouts. The Euro/US Dollar effectively remains trapped between staunch support at 1.2900 and similarly stiff resistance in the 1.3300-1.3400 range. Low forex options implied volatility levels suggests we can expect the single currency to remain in its range, but any flare-ups in market tensions could easily force a shift in volatility trends.
We will keep a close eye on global risk sentiment and their effects on major currencies. The S&P 500's continued advances bode well for high-yielders, the Euro, and the British Pound against the Japanese Yen and US dollar. Yet a breakdown in sentiment could just as easily lead to breakouts in these major pairs.
Forex Trading Automated Systems Outlook
Our Momentum and Breakout trading systems have underperformed as of late, as trading ranges present clear challenges to our trend and breakout-based strategies. In fact, the slow-moving Momentum1 system has actually produced net-losses in the past 60 days of trade. This particular strategy waits for extremes in market sentiment to take contrarian positions. Range trading conditions have meant that sentiment rarely reaches extremes, and the rare extreme often markets a currency top or a bottom. It remains critical to gauge trend dynamics in assessing the relative worth of these particular trading signals.
It remains critical to monitor US Dollar pairs through the near term and manage our trading biases accordingly. For the moment, we favor Range2 and Range1 trading signals. Yet we remain mindful that low volatility may in fact invite a flare-up in market conditions and key currency breakouts.
DailyFX+ Forex Market Conditions Outlook
NOTE: Data has once again been changed. Due to the ineffectiveness of the 30-day horizon, we are returning to the original 90-day time horizon.
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 30 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 30 trading-day range. A very low number tells us that price is currently at or near monthly 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 monthly range.
Range High – 90-day closing high.
Range Low – 90-day closing low.
Last – Current market price.
Strategy – 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.
The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FOREX CAPITAL MARKETS, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. FOREX CAPITAL MARKETS, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FOREX CAPITAL MARKETS, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.
