- US Dollar at Fresh Lows versus the Euro
- Yet the Greenback has reversed versus Aussie, Cable
- A pick up in volatility would help confirm Dollar reversal
The US Dollar has steadily fallen to fresh lows versus the Euro, but a USD resurgence versus the Australian Dollar and British Pound suggest that a turning point may be near.
We have favored selling into Greenback weakness almost across the board, but our sentiment-based trading strategies have most recently bought the US currency versus the British Pound and Australian Dollar (sold GBP/USD and AUD/USD).This in itself isn’t enough of a reason to call for a much larger market reversal. And yet we’ll keep a close eye on trader sentiment and price action in the coming days.
One thing working against the US Dollar is extremely low forex market volatility. The safe-haven currency tends to do well in times of market turmoil, and the fact that volatility prices are near multi-year lows helps explain why the Dow Jones FXCM Dollar Index trades at its lowest since February.
A busy week of forex economic event risk could finally bring the kind of market volatility necessary for a bigger Greenback reversal, but as it stands traders are pricing in very slow market moves in the days and weeks ahead.
Source: OTC FX Options Prices from Bloomberg; DailyFX Calculations
Our trading preference thus remains with our trend-following Momentum2 trading strategy until further notice. Past performance is NOT indicative of future results, but the system has done well trading the USD to fresh lows and has most recently switched direction on key pairs.
-- Written by David Rodriguez, Quantitative Strategist for DailyFX.com