Currency market volatility has dipped once again through the past week of trade. An earlier spike in our DailyFX 3-Month Volatility Index quickly reversed on the July 4th North American holiday, and it seems as though options traders are pricing in smaller price moves through summer month trading. This may come as a surprise to some, as equity and commodity market volatility has risen noticeably through the same period. Yet our market outlook subsequently remains unchanged from last week: expect broad ranges across major currency pairs to persist 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. The recent drop in our DailyFX Volatility Index only reinforces this view, and there is little reason to change our assessment on overall market conditions. 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. 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. (Concern over Global Rates and Growth Stalls the Rebound in Carry)
[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.