Japanese Yen, Euro, and US Dollar Offer Top Trades

12/09/2014 9:00 am EST

Focus: CURRENCIES

David Rodriguez

Quantitative Strategist, DailyFX.com

David Rodriguez of DailyFX.com shares a video in which he explains how forex volatility prices continue to trade at or near yearly peaks and how the US dollar continues to march to new multi-year highs while the Japanese yen and the euro continue to tumble.



The US dollar continues to power to fresh highs as the euro and Japanese yen tumble. Why might the greenback surge further in the week ahead?

See the video above for the full rundown and the chart and table below for currency-specific outlook.

Forex Volatility Prices Trade Lower but Remain Elevated, Favor US Dollar Extension Higher

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Data source: Bloomberg, DailyFX Calculations
Click to Enlarge

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

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Definitions
Click to Enlarge

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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