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Trend Strength Broadly Weakens for US Dollar

DailyFX.com -

Talking Points:

-USD SSI Flashes Weaker Bear Signal

-8 Pairs Switch from Trend to Range

-9 of 12 Pairs Display Weak or Weakening Volatility

The DailyFX Plus Breakout2 strategy is one of the more widely followed by traders. This piece aims to identify those markets where breakout conditions are prevalent, and therefore a follow through of the breakout is more likely.

Last week, we noted for the first time in several months, SSI switched to a uniform bear signal according to FXCM’s SSI. Though the US Dollar did end the week weaker, it was a choppy weak for trading the breakout2 strategy.

Last Week’s Conviction Chart US Dollar SSI Flashes Broad Based Bear Signal

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This is partly due to weakening trends and slowing volatility. The weakening trends are evidenced through the ADX indicator.

Eight pairs shifted to range resulting from a weak trend. The only two pairs still showing evidence of a strong ADX reading is USDCAD and NZDUSD. The USDCAD broke down to levels not seen for nearly 3 months this week.

USDCAD 3 Hour Chart

Trend Strength Broadly Weakens for US Dollar
Trend Strength Broadly Weakens for US Dollar

(Created using FXCM’s Marketscope charts)

The USDCAD appears to still have some room to run to the downside and if retails traders begin to buy this dip, then it will improve the conviction rating for the Loonie. As it stands, the volatility reading is still relatively low and SSI is neutral so this pair still has headwinds which is why the conviction rating was left as a ‘2’.

In addition to weakening trends, we are also seeing broad based weak volatility. Nine of the twelve currency pairs followed have weak or weakening volatility readings. Only the EURUSD, GBPUSD, and USDCHF show elevated or increase volatility levels.

Think about this for a moment, if it weren’t for Greece and the UK elections, what would we talk about?

Oil has been on the move which has helped spark USDCAD movements. Fed Chairwoman Janet Yellen has been talking down near term rate hikes in the US. If you were viewing just headlines, you might think broader based volatility exists and it simply isn’t there right now.

Therefore, conviction ratings remain suppressed as we await for stronger trends to develop.

DailyFX Plus Breakout2 Conviction Chart for April 24, 2015

ADX

ROC

Volatility Expansion?

Sentiment Signal

Conviction

EURUSD

Range

Bullish

Yes

Bullish

2

AUDUSD

Range

Bullish

No

Neutral

1

GBPUSD

Range

Bullish

Yes

Neutral

2

NZDUSD

Trend

Neutral

No

Neutral

1

USDCHF

Range

Bearish

Yes

Bearish

2

USDCAD

Trend

Bearish

No

Neutral

2

USDJPY

Range

Neutral

No

Bearish

1

EURJPY

Range

Bullish

No

Bearish

1

GBPJPY

Range

Bullish

No

Bearish

1

CHFJPY

Range

Bullish

No

Neutral

1

AUDJPY

Range

Bullish

No

Bearish

1

EURAUD

Range

Neutral

No

Bullish

1

Bold and italicized ratings illustrate those pairs whose conviction ratings changed from the previous report. More specifically, the AUDUSD, GBPUSD, NZDUSD were all downgraded 1 notch.

To receive future articles emailed to you regarding the conviction ratings for the DailyFX Plus Breakout2 signals or trading an automated portfolio, sign up for the distribution list here.

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX Education

The DailyFX Plus Breakout2 strategy can be automated. If you wish for the trades to trigger automatically into your account, register for a Mirror account which provides you access to dozens of other strategies as well.

Follow me on Twitter at @JWagnerFXTrader.

See Jeremy’s recent articles at his DailyFX Forex Educators Bio Page.

Feedback? Email Jeremy at jwagner@dailyfx.com


original source

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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