An important US Dollar (ticker: USDOLLAR) sell-off against the Euro through the early London session may offer an opportunity to get short EURUSD within the overall downtrend.
DailyFX Individual Currency Pair Conditions and Trading Strategy Bias
DailyFX PLUS System Trading Signals –The Euro started the week higher against the US Dollar (ticker: USDOLLAR), and a sharp EURUSD bounce through Monday’s price session suggests that the pair could see further upside. Yet our Euro forecast continues to favor EURUSD weakness, and indeed we believe this may represent an attractive opportunity to sell EUR into its broader downtrend.
Our proprietary sentiment-based trading strategies recently went short Euro/US Dollar into clearly one-sided trading crowd sentiment. The positions have since been closed out at a profit as the Euro bounces off of recent lows. Yet current crowd positioning measures continue to favor Euro weakness, and indeed a sharp drop in forex market volatility expectations gives little reason to expect any sharp deviation from the trend.
Our DailyFX Volatility Indices are now near their lowest levels since May as traders seemingly position themselves for modest currency moves. Yet the sheer strength of the Euro trend leaves us in favor of trend trading strategies across several currency pairs. The US Dollar remains attractive against the Euro and other European currency pairs.
One critical exception is the Australian Dollar, where low volatility favors AUDUSD strength. In fact a bearish EURUSD bias and bullish/neutral AUDUSD forecast combines to keep us watching for further EURAUD lows.
Forex options volatility expectations have tumbled as price action slows. We will avoid our high-volatility Breakout strategies until further notice, while several trend and range-based systems look attractive given broader forex market price action.
--- 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 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.
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.
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