- Japanese Yen volatility nearly guaranteed on a big week for forex markets
- Our Senior Currency Strategist believes USDJPY advances can be sold
- Sentiment-based trading strategies may do well amidst the market shift
A big jump in forex market volatility suggests the US Dollar and Japanese Yen could continue to see big moves in the week ahead. How might we trade it?
The Japanese Yen posted its biggest single-weekly advance versus the USD (USDJPY decline), and we note several key reasons why the JPY could yet continue to fresh highs. Namely: the major currency stands at critical resistance (USDJPY, EURJPY support) as forex volatility prices rise significantly ahead of key economic event risk.
A break is far from guaranteed, but we believe that broader financial market turmoil could spark the major currency moves. And indeed, our Senior Strategist sees evidence that any near-term USDJPY rallies could be sold.
Important gains in forex volatility prices suggest that many traders are betting on and/or hedging against bigger currency moves in the days and weeks ahead.
The shift in market conditions suggests our volatility-friendly Breakout2 trading strategy could do well across JPY and other currency pairs. Past performance is NOT indicative of future results, but our purely forex sentiment-based Momentum2 trading strategy has likewise done well amidst recent market moves.
We’ll keep a close eye on the Japanese Yen and keep traders updated via our forex real time news feed. Take a look at full strategy preferences below and sign up for future e-mail updates via my distribution list.
Forex Volatility Prices Have Jumped, Favoring Stronger Market Moves Ahead
Source: OTC FX Options Prices from Bloomberg; DailyFX Calculations
DailyFX Individual Currency Pair Conditions and Trading Strategy Bias
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--- 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.
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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