Watching Forex Volatility

A new trading week has begun and some great questions are being asked on the ‘Hot Topics’ discussion board on Currensee. Many of the questions allude to ‘ok, US Payroll gave a lift to risk-taking with the Yen being sold off and equities surging on Friday, but what will be the next big move and which currency pair should be traded’. This isn’t just currency traders too as one look at the sideways trade in equities on Monday shows that traders in multiple markets are asking that similar questions.

One thing I did on Monday to try and answer that question was to take a look at the ‘Community Historical Volatility’ widget on Currensee. This widget displays key levels based on points of historical volatility from within the Currensee community. My goal was to find a currency pair that has seen its volatility per the community diminish significantly. This could lead to a potential break-out if my assumption is right. You can then cross that pair with technical analysis to see if the charts agree and hopefully there would be a fundamental reason or economic release that serves as a catalyst for that break-out.

For example the first pair that I viewed was EURUSD and the corresponding 3rd level support and 3rd level resistance points enter at 1.3597 and 1.3667. That is only a 70 pip spread between the top and bottom support and resistance levels. Remember that these are weighted averages, but with such a small spread between so many resistance and support levels this is exactly what I am looking for. If those numbers were say 1.35 and 1.45 then I’d presume that the current trend is strong with a potential bias for maturation. With the 70 pip spread one look at the daily chart shows that EURUSD has been consolidating the last 2 weeks as the Greece saga rolls on. It may be Greece or it may be US retail sales that serves as a catalyst but to me this will be one pair to watch for a potential break-out over the coming days.

Another pair that shows a tight spread is AUDJPY. With 94% of the community Short AUDJPY (by volume) there are only support levels listed on the ‘Community Historical Volatility’ widget but the idea still holds true. The spread between the 3 support levels is only 20 pips, very tight. Compare this to USDJPY which has a 140 pip spread or EURJPY which has a 130 pip spread and that is only looking at resistance points. AUDJPY outperformed its peers last week as the RBA hiked to 4%. This week it may be the Australian employment report or even the neighboring RBNZ decision (potential for a surprise in the decision or the Statement) that could serve as a catalyst for an extended move in AUDJPY.

An example of a currency pair with large spreads that I’d probably not trade and expect consolidation this week would be EURGBP. The spread is just shy of 440 pips. Again Greece and all have helped put the ‘vol into this currency pair but last week’s outcomes by the Bank of England and European Central Bank were about as exciting as watching paint dry. Add to the fact that this is the most expensive currency pair and for my money this pair is ‘yours’.

My goal is here to find a currency pair that will break out of its narrow range and begin a new trend or renew a prior one. Whether you are a scalper or prefer trends have a look at the ‘Community Historical Volatility’ widget to help you maximize opportunities.

This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.


Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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    Watching Daily Forex Volatility | The Currensee Exchange

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