Japanese Yen Remains Our Top Forex Trade in the Week Ahead

– Japanese Yen falls sharply and remains our forex trading focus- Our Momentum2 strategy has done well selling JPY, we believe it can continue- Low forex volatility prices suggests US Dollar could remain otherwise range-bound

The Japanese Yen continues to tumble versus major forex counterparts, and oursentiment-based trading strategies remain well-positioned to sell into JPY weakness.

Last week we wrote much the same: the Japanese Yen remains our focus given its sharp downtrend. And indeed our FX sentiment-based Momentum2 trading system has sold aggressively into further declines. Our Senior Market Strategist remains in favor of further USDJPY strength as long as it remains above ¥99.65. What of other currencies?

The US Dollar looks to weaken against the high-flying British Pound. Yet important downtrends in the Australian Dollar, Canadian Dollar, and New Zealand Dollar versus the US currency give us an admittedly mixed outlook on the Greenback itself. Outside of the Japanese Yen pairs, major currencies could stick to relatively narrow trading ranges.

To that end it’s worth noting that forex volatility prices are up noticeably from last week—particularly as Friday promises sharp USD moves on a highly-anticipated US Nonfarm Payrolls report. Yet we’ll need to see a more sustained move in vols to materially change our Dollar outlook.

Forex Volatility Prices Rise ahead of US Nonfarm Payrolls Report but Remain Relatively Low
Source: OTC FX Options Prices from Bloomberg; DailyFX Calculations

We continue to favor our range-trading Range2 system on the Euro/US Dollar and US Dollar/Swiss Franc, while the Momentum2 system is our preference on the Japanese Yen and several commodity bloc pairs.

See full detail on our trading biases in the table below, and sign up for e-mail updates via my distribution list for any changes.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias
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— Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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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.
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Source: Daily fx