A major breakdown in the US Dollar greatly boosted performance in several of our forex trading strategies, as our Momentum and Breakout systems were heavily long the Euro, Canadian dollar, Swiss Franc, Australian Dollar, and New Zealand dollar against the US currency. A continuation of the dollar downtrend would certainly bolster outlook for these trend-following systems, and the US Dollar Index’s break below a key 10-month trendline and 200-day SMA suggests further losses are likely. Of course, we cannot discount the possibility that the Dollar breakdown may lead to subsequent consolidation.
It remains important to monitor day-to-day price action in key currency pairs. Fresh lows in volatility expectations suggest that few anticipate major price moves through the medium term. Said drop really limits our optimism for Momentum and Breakout trading systems, but we cannot ignore the clear short-term trends in major currency pairs.
[B]Forex Trading Automated Systems Outlook[/B]
Our Momentum and Breakout trading systems have had a strong run in the past week or so, with the US Dollar’s breakdown providing solid opportunities in these strategies. Momentum2 had previously shown negative performance in the preceding 60 days of trading, but the recent turn has been enough to lift the strategy into positive territory through time of reporting. Clearly a continuation of the USD downtrend would be beneficial to the Momentum2 and Breakout2 systems. Yet we remain clearly aware of the fact that low volatility figures suggest markets may re-enter large trading ranges through upcoming trade.
It remains critical to monitor US Dollar pairs through the near term and manage our trading biases accordingly. For the moment, we favor Breakout2 and Momentum2 trading signals. Yet we remain mindful that low volatility may in fact invite a turndown in currency movements and a return to trading ranges.
[B]DailyFX+ Forex Market Conditions Outlook[/B]
[B]NOTE: Data has once again been changed. Due to the ineffectiveness of the 30-day horizon, we are returning to the original 90-day time horizon.[/B]
[B]Definitions[/B]
[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 30 days 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 30 trading-day range. A very low number tells us that price is currently at or near monthly 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 monthly range.
[B]Range High[/B] – 90-day closing high.
[B]Range Low[/B] – 90-day closing low.
[B]Last[/B] – Current market price.
[B]Strategy[/B] – Based on the above criteria, we assign the more likely profitable strategy for any given currency pair. A highly volatile currency pair (Volatility Percentile very high) suggests that we should look to use Breakout strategies. More moderate volatility levels and strong Trend values make Momentum trades more attractive, while the lowest Vol Percentile and Trend indicator figures make Range Trading the more attractive strategy.
[I]The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FOREX CAPITAL MARKETS, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. FOREX CAPITAL MARKETS, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FOREX CAPITAL MARKETS, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.[/I]