US Dollar Offers Breakout Trading as Volatility Surges
David Rodriguez
DailyFX PLUS System Trading Signals – Forex market conditions remain volatile, and volatility-friendly breakout trading strategies stand to do well amidst sharp currency moves. The Dow Jones FXCM Dollar Index (ticker: USDOLLAR) trades at its highest levels since September, 2010, and the safe-haven US currency stands to strengthen further if volatility continues.
The Dollar may do especially well against “high-Beta” currencies such as the Australian Dollar and Canadian Dollar, which have both broken below key support levels versus their US namesake. Our retail FX sentiment indicator shows that crowds have bought aggressively into AUDUSD weakness, and our sentiment-based trading strategies have accordingly gone long the US Dollar against the Commodity Bloc.
One especially bright spot for said system has been the Japanese Yen and particularly the Euro/JPY and other cross rates. With the recent reversal in the EURJPY, however, we are admittedly left to question whether the recent JPY bounce could be the start of a larger correction. If it is indeed the start of a larger breakdown in JPY cross rates, the one-way breakout trade that has served us so well may soon prove more difficult.
DailyFX Forex Volatility Indices
forex_trading_us_dollar_and_breakouts_body_Picture_1.png, US Dollar Offers Breakout Trading as Volatility Surges
Our FX Options-based DailyFX Volatility Indices continue to hit fresh peaks, and indeed it seems that professional traders predict strong currency moves will continue into the weeks and months ahead. We use these indicators to help predict which trading strategies stand to do well based on past market performance and experience.
View the table below to see our strategy preferences broken down by currency pair.
DailyFX Individual Currency Pair Conditions and Trading Strategy Bias
forex_trading_us_dollar_and_breakouts_body_Picture_2.png, US Dollar Offers Breakout Trading as Volatility Surges
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.
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