Article summary: An important drop in volatility expectations makes selling the sudden Euro and British Pound bounces attractive, while higher Aussie Dollar volatility prices point to further AUDUSD lows.
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Market conditions remain challenging for our trend and price-following Momentum and Breakout trading systems, but our low-volatility Range2 trading system stands to do well across a number of currencies in slow-moving markets.
The sudden Euro and British Pound rally/US Dollar sell-off seems an attractive opportunity to play trading ranges; as long as the British Pound remains below $1.5605 we like a short position. The Euro, on the other hand, continues to respect its month-to-date highs at $1.3242. A short position remains attractive as long as volatility remains low and key levels hold.
The Australian Dollar and New Zealand Dollar pairs are the key exceptions: both currencies show elevated volatility expectations. The AUDUSD in particular looks as though it may decline sharply as it stays below key resistance at $1.0260. The NZDUSD looks similarly bearish below $0.8590.
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See the table below for an updated breakdown of volatility and trading biases:
Wrapping things up: We’ve seen a big slowdown in forex market moves, and our previously-favored Momentum2 and Breakout2 strategies have had a poor run of trades as they get chopped up. There’s no need to force the issue—we’ll simply shift towards our Range2 strategy and similar; the EURUSD and GBPUSD are attractive in this regard.
Momentum2 has nonetheless sold AUDUSD and NZDUSD while it’s gone long EURCHF. We like these trades as volatility prices on these pairs remain fairly elevated.
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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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