US Dollar Remains a Buy as Volatility Surges—What to Watch

09/16/2014 9:00 am EST

Focus: CURRENCIES

David Rodriguez

Quantitative Strategist, DailyFX.com

David Rodriguez of DailyFX.com points out the recent UD dollar major highs and record volatility prices. Plus, he shares a table for full strategy rundown on a per-currency pair basis.

• US dollar continues near major highs as volatility reigns supreme

• One-week volatility prices have surged to their highest on the year

• We favor vol-friendly breakout trading strategies across USD and JPY pairs

A surge in volatility prices leaves us focused on big currency moves in the days and weeks ahead. We’re positioning for sharp price swings.

US Dollar Trades Near Multi-Year Highs as FX Volatility Prices Surge

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Data source: Bloomberg, DailyFX Calculations
Click to Enlarge

See the table below for full strategy rundown on a per-currency pair basis.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

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Click to Enlarge

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% 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 volume percentile and trend indicator figures make range trading the more attractive strategy.

By David Rodriguez, Quantitative Strategist, DailyFX.com

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