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Forex pairs in this Article » EUR/USD, GBP/USD, USD/JPY
- Dollar likely set bottom on a substantial shift in forex market sentiment

- Forex volatility prices have risen, but remain near year-to-date lows

- Strong Dollar correlation to volatility suggests large rally less likely

A substantial shift in forex market sentiment has helped confirm an important US Dollar bottom, but are we likely to see a similarly significant new uptrend?

Our DailyFX Volatility Indices show 1-Week volatility expectations are at their highest since September on a busy week of US Dollar and Euro economic event risk. Yet longer-dated vols remain near their lowest levels on the year, and relatively few traders seem to fear outsized currency swings.

Short-Term Forex Volatility Prices Have Bounced but Longer-Dated Vols Subdued

forex_strategy_US_Dollar_Likely_Set_Important_Bottom_body_Picture_1.png, Dollar Likely Set Important Bottom, but is New Uptrend Likely?Source: OTC FX Options Prices from Bloomberg; DailyFX Calculations

The correlation between the Dow Jones FXCM Dollar Index and our DailyFX Volatility Indices remains quite strong, and we’ll likely need to see a bigger jump in vols before further follow-through on recent USD gains.

As far as trading strategies go, our preference remains with our trend-following Momentum2 trading strategy until further notice. Past performance is NOT indicative of future results, but the system has done especially well trading the recent Dollar reversal.

The key risk to Momentum2 and our broader sentiment-based trading strategies is simple: a slowdown in market moves typically hurts our trend-following trading systems.

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

forex_strategy_US_Dollar_Likely_Set_Important_Bottom_body_Picture_2.png, Dollar Likely Set Important Bottom, but is New Uptrend Likely?forex_strategy_US_Dollar_Likely_Set_Important_Bottom_body_Picture_3.png, Dollar Likely Set Important Bottom, but is New Uptrend Likely?Automate our SSI-based trading strategies via Mirror Trader free of charge

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