Sustained gains in currency market volatility suggest that major pairs may see large movements through the short term, but overall market indecisiveness suggests that certain currencies may remain in an exceedingly volatile range through upcoming trade. The Euro represents a prime example in this regard, as the EURUSD has remained within an especially choppy 700 point range through the past two months of price action.
Market Conditions Summary
Sustained gains in currency market volatility suggest that major pairs may see large movements through the short term, but overall market indecisiveness suggests that certain currencies may remain in an exceedingly volatile range through upcoming trade. The Euro represents a prime example in this regard, as the EURUSD has remained within an especially choppy 700 point range through the past two months of price action.
Preferred Strategies
Given admittedly adverse market conditions, it is difficult to establish a clear trading strategy for the week ahead. A highly choppy range across major pairs suggests that we may see worthwhile tops and bottoms across key currencies—making the “Tops and Bottoms” report our preferred trading signal through the short term. Next on the list is the “Pairs to Range Trade” report, but traders should be mindful of clear potential for intraday breakouts and manage risk accordingly.
Discretionary Strategy Outlook
[B]Tops and Bottoms[/B] – Clear market indecision suggests that we may see significant short-term tops and bottoms across major pairs, and we will accordingly look to the Top and Bottoms report for trade setups. A sharp rise in volatility across key currencies likewise boosts the likelihood of significant reversals.
[B]Pairs to Range Trade – [/B]Elevated volatility makes range trading an ostensibly risky proposition, but it is likewise worthwhile to note that major currencies have remained within fairly well-defined ranges through recent trade. As such, we would argue that the “Pairs to Range Trade” report may offer attractive opportunities in the week ahead. Traders should nonetheless remain mindful of strong potential for intraday breakouts and manage risk accordingly.
[B]Speculative Sentiment Index Trading Signals – [/B]Our SSI signals have proven somewhat disappointing through recent trade, as the SSI tends to underperform in sideways/choppy trading markets. Given that we expect such market conditions to persist, traders may decide to trade the SSI with less size or not at all until we see a clear shift in market conditions.
[B]Hedging Radar[/B] – Hedging strategies typically outperform during times of directionless price action. As such, the Hedging Radar report may offer some attractive setups through the near term.
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 Advance Fails as Yield Forecasts Favor Funding Currencies)
[B]Technical Analyzer and Signals from Thomson IFR[/B] – Pay special attention to intraday breakout/range setups in the week ahead, while underweighting signals that may require strong trending until market conditions improve.
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.