Currency market volatility fell further through last week’s trade only to post a pronounced rebound through late price action. It seems as though currencies remain within their uneasy chop—forcing short-lived breakouts with little advance notice but mostly remaining within broad ranges. Such a dynamic is easily visible in the euro, which has been unable to break beyond its 600-point monthly range despite sharp intraday price moves. Our outlook subsequently remains largely unchanged from last week’s report; expect further Rangebound price action through the near term.
Preferred Strategies
Market conditions continue to favor our “Pairs to Range Trade” report across major currencies, as we have yet to see evidence that these pairs will break long-standing support and resistance. Such an outlook leaves our Speculative Sentiment Index Trading Signals at a disadvantage; these trades tend to perform best in strongly trending markets. Relative market indecision increases the likelihood of short-term tops and bottoms—likewise improving outlook for our “Top/Bottom” trading report.
Discretionary Strategy Outlook
[B]Pairs to Range Trade – [/B]Major currencies continue to see sharp volatility on an intraday basis, but a cursory look at daily or weekly charts shows that most remain within clear ranges. Though our DailyFX Volatility Index picked up through the past week of trade, we see little reason to expect a significant shift in market conditions through the near term. The “Pairs to Range Trade” report should offer attractive trade setups until we break out of our pre-existing ranges.
[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]Tops and Bottoms[/B] – There is no set trading style for this report, and as such, it is a bit difficult to set a market conditions-based bias for its trading signals. That said, currency pairs are fairly likely to set near-term tops and bottoms through the days ahead—making these signals an ostensibly attractive proposition.
[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. (A sharp drop in risk appetite cuts short a possible carry trade breakout.)
[B]Technical Analyzer and Signals from Thomson IFR [/B]– Pay special attention to 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.