Currency Trading Markets Calm Ahead of US Non Farm Payrolls Report

Currency trading market volatility measures have all continued to fall, as forex speculators show relatively little willingness to break the Euro and other majors out of their narrow trading channels. Tomorrow’s US Non Farm Payrolls event has not caused a noticeable shift in highly sensitive 1-week currency options, and indeed it seems that few are geared up for major moves following the infamous employment report. Of course, we will always remain on the defensive and manage position risk ahead of such historically market-moving events, but it seems that currencies are likely to remain Rangebound through the foreseeable future.

Preferred Strategies

Our medium term bias remains the same, but we would advise against overleveraging oneself on US dollar pairs in the days ahead; it is extremely difficult to predict what the dollar may or may not do before and after the Non Farm Payrolls report. That said, our preferred strategies remain unchanged; Given the likelihood of Rangebound and directionless currency price action, we prefer trading strategies such as Jamie Saettele’s “Picking Tops and Bottoms” report through the short term.

Discretionary Strategy Outlook

[B]Picking Tops and Bottoms[/B] – This difficult-to-classify strategy has performed well as of late, and we see little reason to remove it from our “Preferred” position on our weekly outlook report. The prospects of Rangebound markets ostensibly increase the likelihood of short-term Tops and Bottoms, and we will trade accordingly.

[B] Pairs to Range Trade[/B] – Rangebound markets should improve the profitability of our “Pairs to Range Trade”, but the strategy’s recent underperformance decreases confidence in its ability to outperform in seemingly favorable market conditions. Keep an eye out for good range setups, but as always use your own discretion in picking promising trades.

[B] Speculative Sentiment Index Trading Signals[/B] – Our Speculative Sentiment Index trading signals have underperformed as of late, as the contrarian strategy tends to perform best in clearly trending markets. We recommend underweighting exposure to SSI signals until we see a clear shift in our current range trading bias.

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 trade: A Sharp Reversal Threatens the Rebound in Carry Trade in Risk Appetite.

[B] Technical Analyzer and Signals from Thomson IFR[/B] – Use own discretion to filter through IFR or Technical Analyzer signals in the week ahead.

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 three months 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.

[B]Trend [/B]– This indicator measures trend intensity by telling us where price stands in relation to its three-month range. A very low number tells us that price is currently at or near quarterly 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 quarterly range.