- US Dollar surges near multi-year highs as volatility jumps
- Recent drop in volatility prices nonetheless warn against chasing USD gains
- We remain in favor of vol-friendly trading strategies but will express caution on Dollar pairs
Sharp gains in currency volatility have pushed the US Dollar to fresh high and leave us in favor of high-vol strategies. Yet key signs warn the USD is at a major turning point.
We’ve recently seen 1-week volatility prices surge to their highest since the DJ FXCM Dollar Index traded off of key peaks in July, 2013. The Euro likewise set major lows around the same time period, and price and time studies suggest that the EUR/USD may indeed see a similar reversal in the coming week.
Data source: Bloomberg, DailyFX Calculations
Our volatility-friendly Breakout2 trading strategy has done well in recent markets, but it’s critical to note that past performance is not indicative of future results and indeed volatility prices have fallen since last week. Combine that with the risk of a Dollar pullback, and we think traders may look to reduce leverage in USD-based trades through the foreseeable future.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com