Forex Strategy Outlook: Euro Primed for Selling Opportunities

A sharp swing higher in forex options market volatility expectations suggests the Euro/US Dollar and Australian Dollar/US Dollar pairs could see further sharp declines into the days ahead.

A sharp swing higher in forex options market volatility expectations suggests the Euro/US Dollar and Australian Dollar/US Dollar pairs could see further sharp declines into the days ahead.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

DailyFX+ System Trading Signals –It’s been a respectable week for our Breakout Opportunities system, as breakouts in key pairs offered great opportunities for profit. Volatility expectations are riding quite high amidst what promises to be another eventful week of price action, and our biases actually call for more aggressive Breakout trading in the days ahead.

The key point is nonetheless that intraday swings have been quite sharp. Thus we like trading systems such as Optimal Entry on pairs such as the EURUSD and AUDUSD; we could see short-term US Dollar weakness before the next leg higher.

Keep an eye on all SSI-based systems, as these incredibly volatile markets often benefit our price-following strategies.

Market Conditions:

Our volatility indices are significantly higher than they were a week ago, sparked by increased fears over financial market stabilities and problems in the Euro Zone. Expect such high volatility expectations to translate into sharp currency moves. We’re particularly looking for further EURUSD and AUDUSD declines amidst clear market uncertainty.

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

To contact David, e-mail drodriguez@dailyfx.com

To be added to David’s e-mail distribution list for this and other reports, e-mail subject line “Distribution List” to drodriguez@dailyfx.com

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 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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