How to Trade DailyFX+ Currency Trading Signals in Week Ahead

Relatively unchanged market volatility levels have made for quiet movements across major currency pairs, but very recent developments may threaten to break the uneasy calm across forex markets. Indeed, our DailyFX Volatility Index has today posted its largest single-day gain in three weeks. It is too early to tell whether we can expect similar movements in the days ahead, however, and our overall market indicators favor low-volatility trends and rangebound conditions. Absent a sustained shift in volatility, our outlook remains effectively unchanged for the week.


Preferred Strategies
Given a low-volatility Trend bias across the majority of our traded currency pairs, we continue to overweight trading signals provided by the FXCM Speculative Sentiment Index report. To a somewhat lesser extent, quiet ranges in other currency pairs may make Range Trades profitable in the week ahead. Yet we make our usual disclaimer applies: traders should avoid trying to range-trade against the direction of strong underlying trends. For similar reasons, we would underweight the Hedging Report’s anti-trend trades through the short term.
Discretionary Strategy Outlook
[B]Hedging Radar[/B] – Strong trends across key currency pairs may make for somewhat difficult Hedge Trading conditions in the majors, but some crosses may offer comparatively attractive setups in the week ahead.
[B]Pairs to Range Trade – [/B]Depressed volatility levels make Range Trades attractive in the week ahead. Trading counter-trend is almost never advised, however, and traders should be mindful of poor risk-reward levels on strongly directional currency pairs.
[B]Speculative Sentiment Index Trading Signals – [/B]Our Speculative Sentiment Index signals have given us relatively little directional bias through recent trading, but we nonetheless feel that conditions remain ripe for SSI-based trades. Using the SSI as a complement to your own trading techniques remains an attractive option through the near term.
[B]Tops and Bottoms[/B] – It is always difficult to create a general bias for the Top/Bottom report, as it is not immediately clear when we may expect strong reversals in price among major currency pairs. A relative unease across key currencies could potentially make for noteworthy reversals, but it is always difficult to predict a turn in the tide. As such, we would argue that a trader may choose to underweight reversal-based trades until we see further evidence of Tops and Bottoms.

Systems Outlook
[B]Dynamic Carry Trade Basket[/B] – Please see our weekly report on Carry Trades for a better idea on what to expect through short-term trading. (Carry Trade Gains as Yields Turn Higher, Global Growth Outlook Improving)
[B]Technical Analyzer and Signals from Thomson IFR[/B] – Pay special attention to trade ideas with trend or range strategies in mind, while keeping size small or staying out of Breakout trades.


Chart Definitions
[B]Volatility Percentile[/B] – 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 calendar year 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 calendar-year range.
[B]Trend[/B] – This indicator measures trend intensity by telling us where price stands in relation to its 52-week range. A very low number tells us that price is currently at or near yearly 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 annual range.