Article Summary: Continued surges in Japanese Yen volatility expectations leave us in favor of breakout and trend-based trading systems. The US Dollar sees itself in a similarly consistent downtrend against the Euro and other key counterparts; Dollar trend trades remain attractive.
DailyFX PLUS System Trading Signals – A surge in Japanese Yen volatility expectations has lifted our DailyFX Volatility Indices to 5-month highs, and we believe markets are ripe for further high-volatility trading.
The Japanese Yen has tumbled to multi-year lows versus the US Dollar (ticker: USDOLLAR), and forex options traders predict that JPY volatility will remain elevated through the foreseeable future. We recently called for an important USDJPY correction as an opportunity to get long (short JPY), but a two-day pullback quickly gave way to further surges.
Japanese Yen Implied Volatility Expectations Remain Elevated
It’s difficult to advocate getting short the Japanese Yen (long USDJPY, EURJPY, AUDJPY, etc…) given its extreme declines, but current volatility readings and forex trading crowd sentiment favor continued weakness. How might we get short JPY?
Given that it is psychologically quite difficult to buy the USDJPY and other Yen crosses at such elevated levels, we will look to our trend and volatility-friendly automated FX trading systems to produce attractive trading opportunities.
Beyond the Japanese Yen, volatility has been more limited. Yet a fairly consistent US Dollar decline versus the Euro, Australian Dollar, and Swiss Franc leaves us in favor of USD-short trend trades.
DailyFX 1-Month Volatility Index versus S&P 500 Volatility Index (VIX) 2011 - Present
Past performance is not indicative of future results, but our “Momentum2/Tidal Shift” system and “Breakout2/Breakout Opportunities” strategies have outperformed on key US Dollar and Japanese Yen currency pairs. Market conditions remain mostly unchanged since last week, our overall strategy trading biases are similarly consistent. View the full breakdown of our strategy preferences by currency pair below.
DailyFX Individual Currency Pair Conditions and Trading Strategy Bias
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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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.