FX Volatility - CASE STUDY

Written by Trade Team | 31 August 2009

Actual FX Volatility Trades - CASE STUDY I

Period Covered From : August 18, 2009 - August 28, 2009

The Case Study presented on the Foreign Exchange transactions are based on '  Real and Actual ' trades executed from the above stated period covered and it would clearly show how ' An Effective FX Trading Strategy ' in a worst case scenario can be best utilized in the form of hedging techniques between major pairs, cross-rates, futures and the precious metals markets.

Although, these practises are more complex and carries a higher degree of sophistication  and / or trading skills which could be develope through proper due diligence, research, a reliable source of information and  experiences in the Foreign Exchange Trading and the Commodity Futures Market. The results of trading in a volatile market like the Foreign exchange rates may well vary for each individual investor and trader since primary objectives and financial conditions differ from one another. As a matter of record, there is no guarantee that future results like in this case study may or may not be the same and should be used as an informational reference only.

US Dollar Index

FUNDAMENTALS SUPPORTING A SIGN OF RECOVERY

As it has been a given fact, that the US Dollars' value has depreciated since the beginning of the year and has continued there on to this writing. The US Dollar better known in the industry as the ' USDX / DXY ' or the US Dollar Index, is an index that measures the value of the US Dollar versus a basket of foreign currency in basis points. As it maintains the price range levels of the US Dollar Index between 78.80 basis pts., high range and a low range price of 77.30 ( figures were rounded-off for simplicity ) the second lowest levels from a low of 70.90 historical low, it may be difficult to find fresh incentives for investors to buy the currency even as a flight to quality investment being the World's Reserve currency. As stocks tries to move and sustains its good levels since the first two (2) qtrs. of the year; investors are also weary of the physical recovery of the economy inspite of the signs and figures on the reports say. 

The week starting the 18th of August - to - the trading week ending August 28, 2009 have been quite supportive for the US Dollar as a barrage of fundamental reports and the recent comments from the Fed Chairman Ben Bernanke that the US is at the verge of economic recovery, the economic report from the National Association of Realtors that home resales is the highest levels from the past 10 years, durable goods, retail sales and a better than expected consumer report from an expected 48.7 in July revised to 54.1. With all these encouraging reports stocks have made some decent positive mioves although the real sentiments never followed through with the volumes. 

So in conclusion since the ' Directional ' Major Trend, fundamental factors and price range levels have been established and from previous trades made prior to this case example; the currencies and commodity identified here were the choices for the investment.

GBP/USD DAILY 

EUR/USD DAILY

Both Major pairs of the Pound and the Euro is also a well defined ' Major Trend ' choosing the two as the lead currency to trade is only but logical sice the highest presence of liquidity is obviusly with the pair compared witht he rest of the other foreign currency being traded for the past months. As it is shown with the weekly charts above since March of this year 2009. And observe that the low support prices on both pairs are higher from their previous weeks and months. Any draw-down on prices were limited to a week or the most to two weeks. But with the average trading range between 150 - 200 pips up and down and price swings are very active covering every high and every low within a short period of time as it would show on the daily and four hourly charts on the succeeding formations.