News Column

US Dollar Coiling up for Big Move, but What are the Trades?

February 24, 2014

David Rodriguez

- Dollar trades at important resistance as markets remain uncertain

- Forex cycle studies suggest the middle of the week is critical for the EURUSD

- US Dollar coiling up for a big move, but we need to see confirmation before trading it



The US Dollar continues to coil up for its next move versus the Euro and other counterparts. But how might we trade it? These are the factors we're watching.



An important Dollar bounce leaves the Dow Jones FXCM Dollar Index at important resistance, and we'll need to see conviction in its next move to have confidence in our earlier calls for an important USD bounce.



Indeed last week we pointed to potentially significant sentiment extremes as a key reason the Greenback was set to surge higher across the board.



A look at market cycles and time studies suggest the next major Dollar move versus the Euro may have to happen midweek to take confidence in calls for an important EURUSD top.



Euro Continues To Move Sideways at Potentially Critical Resistance

forex_trading_the_US_Dollar_breakout_versus_euro_body_Picture_1.png, US Dollar Coiling up for Big Move, but What are the Trades?



This makes trading admittedly difficult as it makes sense to stand pat until we see a major break in either direction. Yet "flat" is certainly a position as markets remain especially uncertain.





Forex Volatility Prices Point to Slow Dollar Moves in the Week Ahead

forex_trading_the_US_Dollar_breakout_versus_euro_body_Picture_2.png, US Dollar Coiling up for Big Move, but What are the Trades?

Source: OTC FX Options Prices from Bloomberg; DailyFX Calculations



DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

forex_trading_the_US_Dollar_breakout_versus_euro_body_Picture_3.png, US Dollar Coiling up for Big Move, but What are the Trades?forex_trading_the_US_Dollar_breakout_versus_euro_body_Picture_4.png, US Dollar Coiling up for Big Move, but What are the Trades?

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

Contact David via Twitter at http://www.twitter.com/DRodriguezFX



Definitions

Volatility Percentile - 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 90 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.

Trend - This indicator measures trend intensity by telling us where price stands in relation to its 90 trading-day range. A very low number tells us that price is currently at or near 90-day 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 90-day range.

Range High - 90-day closing high.

Range Low - 90-day closing low.

Last - Current market price.

Bias - 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.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES IS MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION.

OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. The FXCM group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance contained in the trading signals, or in any accompanying chart analyses.








For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: DailyFx


Story Tools