Last week we claimed that the most important factor in US Dollar trading was forex volatility. In short: the Greenback tends to do poorly during very quiet market conditions and do well as markets begin moving sharply.
The problem with our Dollar-bullish forecast remains the same: forex volatility prices continue to trade near year-to-date lows, and we view a US Dollar break higher as unlikely in current market conditions.
Forex Volatility Prices Continue Trading near Year-to-Date Lows
Source: OTC FX Options Prices from Bloomberg; DailyFX Calculations
What could change that? There are a handful of key events on the US economic calendar which could bring sharp FX moves, and indeed we will maintain our “wait and see” approach on key US Dollar levels.
With the Japanese Yen in particular, there is key resistance in the ¥99.20-100 zone, and a USDJPY break above could signal that a broader Dollar reversal is in play. Alternatively a break below its 200-day Simple Moving Average and key lows near ¥95.20 would put a clear dent in our Dollar-bullish forecast. View full technical forecast for the USDJPY.
This “wait and see” approach doesn’t work especially well for our sentiment-based trading strategies, as our strategy biases can and likely will change quite rapidly if this is indeed a key turning point for the Greenback. In the meantime we’ll tread lightly, but sign up for e-mail updates via my distribution list for any updates.
DailyFX Individual Currency Pair Conditions and Trading Strategy Bias
— Written by David Rodriguez, Quantitative Strategist for DailyFX.com