Continued declines in forex market volatility expectations point to small currency movements in the weeks ahead. Yet a continued US Dollar downtrend suggests that key pairs may continue to set fresh lows and highs. The mix of low volatility and steady trends leaves us in a difficult position as far as trading strategy bias is concerned. On the one hand, range trading strategies tend to outperform during times of slower currency moves. On the other, our trend-following Momentum strategies have outperformed on continued US Dollar losses. We see little option but to continue favoring the “hot hand” in Momentum trading systems, but Range strategies may see a pickup in performance if slower price action persists. Forex Trading Automated Systems Outlook DailyFX+ System Trading Signals – A persistent downtrend in forex market volatility expectations bodes poorly for our volatility-friendly Breakout2 strategy, and indeed we have seen it underperform through the past 7 days of trading. Momentum2 took the spot as top-performing system amidst a generally lackluster week for the DailyFX+ Trading Signals overall. The key question rolling forward is whether we can expect the US Dollar to continue its downtrend despite a similar trend lower in volatility expectations. Though volatility and trends are often closely linked, recent price action shows that currencies can continue setting fresh highs and lows amidst slow price action. It will be critical to watch the US Dollar in the days ahead. To gain a greater understanding of all six trading systems, view my recent presentation on SSI and the trading signals on our forex forums: 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 monthly 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 monthly range.

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