Mirror Trader - Automated Strategies and Trading Signals

[Jason Rogers]

The Japanese Yen tends to do poorly in quiet markets and forex volatility prices are at fresh yearly lows.

Forex Volatility Prices Fall to Yearly Lows, Favoring USD and JPY Weakness

Source: OTC FX Options Prices from Bloomberg; DailyFX Calculations

DailyFX quantitative strategist David Rodriguez believes some of the best trade opportunities "are in the cross rates — EUR/JPY and GBP/JPY in particular. Those views are reflected in the strategy bias table shown below.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

"Our sentiment-based trading strategies have done well selling both the Dollar and Yen through recent price action, and we believe the Momentum2 trading system remains in a good position to capitalize on further Greenback and Yen declines."

 

[Jason Rogers]

DailyFX quantitative strategist David Rodriguez believes there are 3 reasons that may send AUD/USD lower:

1. The mid-month Australian Dollar rally has failed almost exactly at the 61.8 percent Fibonacci retracement of the decline from November highs to lows, and the stop and reverse warns that upside momentum is failing.

2. The pullback has coincided with an important shift in US Treasury Yields and general interest rates.

The fact that the US Treasury Yield has bounced at major support is a USD-positive and an Australian Dollar-negative.

3. Retail forex traders remain heavily long the Australian Dollar versus the US Dollar

Our contrarian sentiment-based Momentum2 trading system has done well selling the Aussie Dollar versus the USD and Euro (long EUR/AUD).

 

[Jason Rogers]

Below is a look back at the past day of trading using movements in the Dow Jones FXCM Dollar Index (ticker: USDOLLAR)

The US Dollar slipped to a new 8-day low on Fed Chief Bernanke’s comments that the target interest rate may stay low even after quantitative easing has ended, but later three key announcements gave the greenback a boost.

The BoE minutes also reiterated that it too will not automatically hike interest rates when the unemployment threshold is hit. Retail sales came out higher than expected. Finally, Bullard commented that the ECB would consider cutting its deposit rate to -0.10%.

The SSI-based Breakout2 strategy on the Mirror Trader platform is currently giving a signal to go long the US Dollar relative to the Australian Dollar (short AUD/USD).

 

[Jason Rogers]

The Momentum2 strategy on Mirror Trader has just given a signal to buy EUR/USD at current levels with a trailing stop at 1.34810. Momentum2 is a trend-trading strategy that aims to catch shifts in trend using trader sentiment as an indicator.

This signal was issued because the Speculative Sentiment Index (SSI) has hit its most extreme negative level for the past 145 trading hours at -2.7468, which suggests that the EUR/USD could be trending upwards.

 

[Jason Rogers]

The Japanese Yen remains the worst-performing major currency, and the DailyFX PLUS trading strategies based on the Speculative Sentiment Index (SSI) remain well-positioned to sell into JPY weakness.

In particular, the Momentum2 system on Mirror Trader continues to buy into USD/JPY and JPY-cross rate gains.

 

[Jason Rogers]

Last week I posted about DailyFX Quantitative Strategist David Rodriguez's 3 reasons why the Australian Dollar could fall versus the US Dollar. Since then AUD/USD has dropped over 300 pips.

Today, David gives us 3 more reasons why the Aussie Dollar decline might continue:

1. A major technical break sees no significant support until the psychologically important $0.9000 mark

2. Aussie Dollar correlation to gold prices leaves it at risk of further declines

3. Heavily one-sided retail forex crowd sentiment has left the SSI-based Momentum2 and Breakout2 systems on the Mirror Trader platform to sell into further weakness, and indeed current readings favor AUDUSD declines.

If you have a trading account with FXCM, you can use your Trading Station username and password to log into Mirror Trader.

 

[Jason Rogers]

The ADP Employment Change for the month of November beat economists’ expectations of 170K, coming in at 215K while the prior print was revised higher from 130K to 184K.

USD/JPY (15-Minute Chart)

This impressive beat follows the ISM Manufacturing data on Monday that showed a better than expected employment component.

Times below in GMT

If we see NFPs follow the ISM and ADP beat, we can expect renewed speculation of a small Federal Reserve ‘taper’ in December thus spurring Dollar strength and US Treasury weakness.

The sentiment-based Momentum2 strategy on Mirror Trader just gave a signal to buy the US Dollar versus the Swiss Franc at current levels with a trailing stop at 0.8995

 

[Jason Rogers]

The Momentum2 strategy on Mirror Trader recently gave a signal to buy NZD/USD. This goes along with an earlier buy signal provided by the Breakout2 strategy. Both strategies are based on our Speculative Sentiment Index (SSI) which means they are contrarian strategies.

The most recent signal was issued because the SSI reading for NZD/USD has hit its most extreme negative level for the past 145 trading hours at -1.3117, which suggests that the NZDUSD could be trending upwards. A trailing stop loss has been set at 0.82603.

 

[Jason Rogers]

The Australian Dollar took an unexpected spill this morning after Reserve Bank of Australia Governor Glenn Stevens surprised markets with overly dovish commentary:

Noting that the economy won't likely be influenced by further rate cuts, Governor Stevens suggested that the economy would fare better if the AUDUSD traded closer to 0.8500

AUDUSD 1-minute Chart: December 12, 2013 Intraday

The Momentum2 strategy on the Mirror Trader platform just sold AUD/USD at current levels with a trailing stop set at 0.9047

The signal was issued because our Speculative Sentiment Index (SSI) has hit its most extreme positive level for the past 145 trading hours at 3.2464, which suggests that the AUD/USD could continue downwards.

 

[Jason Rogers]

The latest reading from our Speculative Sentiment Index (SSI) show that retail traders are heavily long the US dollar going into today's FOMC announcement, particularly versus the Euro and British Pound.

SSI for EUR/USD is -4.28

That means there are 4.28 short positions for every long position in the pair.


SSI for GBP/USD is -3.61

That means there are 3.61 short positions for every long position in the pair.


Not only that, but short positions in these pairs have recently increased while long positions have decreased meaning that retail traders have grown even more bullish on the US dollar leading into FOMC.

SSI is a contrarian indicator, so the combination of current sentiment and recent changes are a strong signal that EUR/USD and GBP/USD could continue higher with today's Fed comments being a possible catalyst.

On the flip side, if today's FOMC meeting turns out to be USD bullish, the resulting drop in EUR/USD and GBP/USD could be muted, since so many traders are already short those pairs.

As a result, a couple of the SSI-based automated strategies on our Mirror Trader platform (Breakout2 and Momentum2) are buying GBP/USD at current levels.