Forex Strategy Outlook: US Dollar Breakdown Greatly Boosts Performance

The sustained downturn in the US Dollar has boosted performance in our trend-following forex trading signals, with Breakout and Momentum systems selling strongly into Dollar weakness. Our Breakout2 system bought the British Pound (GBPUSD) and Euro (EURUSD) at 1.5282 and 1.3542, respectively, and is clearly sitting on sizeable floating gains through time of writing. Though we can rarely expect to see such accurate and timely forecasts, recent conditions have clearly favored our automated strategies.

Subsequent outlook is less clear, and a slow start to the week’s forex trading gives us few indications on what to expect in the week ahead. Volatility expectations gained marginally through last week’s US Dollar breakdown, but they continue to trend lower and remain near their lowest since September, 2008. A continuation of said downtrend would bode poorly for our trend-following and breakout trading systems.

[B]Forex Trading Automated Systems Outlook[/B]

The US Dollar breakdown greatly benefited Momentum2 and Breakout2 systems-both of which are sitting in sizeable floating profits on USD-short positions. We can only hope that said performance can continue through the near term, but we likewise acknowledge that such periods of strong trend moves are usually met with consolidation. That is to say-currency price moves could slow and we may revert to large trading ranges through the near term. It remains extremely difficult to predict general trend conditions and we take our own forecasts with a grain of salt, but our intuition is to treat Trend and Breakout trades with modest skepticism-especially at the tail-end of strong US Dollar moves.

[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]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]