Critical Week in Markets Offers Trading Opportunities

DailyFX

Article Summary: A critical week for forex markets leaves us broadly in favor of our volatility and trend-friendly sentiment-based strategies. View our table summary for which pairs seem particularly attractive.

DailyFX PLUS System Trading Signals It’s shaping up to be a big week for the US Dollar (ticker: USDOLLAR) with critical event risk from the Bank of Japan and the infamous US Nonfarm Payrolls likely to deliver important USD volatility.

We like trading our volatility-friendly breakout trading strategy for certain JPY pairs, while our trend-following systems seem poised to do well on the US Dollar against major counterparts.

Those sentiment-based strategies have had a strong run of performance across Euro pairs—particularly the EURUSD and EURJPY—as the European currency breaks to fresh lows across the board. Our closely-watched DailyFX Volatility Indices show fears of strong moves ahead and we see little reason to stray from our previous trading biases. Our fundamental forecasts for the Euro itself likewise warns of major breakdowns: ongoing Cypriot troubles show no signs of easing.

DailyFX Forex Volatility Indices

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Our DailyFX Volatility indices have fallen from recent peaks, but 1-week expectations have jumped considerably on a key week of event risk for the US Dollar and Japanese Yen in particular.

Our Breakout-based trading strategies tend to do well when these volatility prices continue trading higher, and we’ll keep a close eye on whether the turn up in 1-week vols will be enough to drag the whole curve higher.

View the table below to see our strategy preferences broken down by currency pair.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

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View how to automate the high-volatility Breakout2 Trading System via our previous article and webinar recording.

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

Trade with strong trends via our Momentum1 Trading System and view an archived webinar

Use our counter-trend Range2 Trading system and view an archived webinar guide on automation

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

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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.

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