Taming Volatility


The faster the time frame the greater the relative volatility appears to be. On the chart below we use a monthly tenor. A Wedge pattern present itself which suggests that price is readying itself for a sustained breakout. There are varying interpretations for how to predict the direction of the breakout. As a rule of the thumb one can state that price will break opposite the direction which shows the most support or resistance against the the upper and or bottom of the Wedge. In this case Oil looks as if it may break higher as Oil has hit the lower Wedge line multiple times without breaking lower.


The CAD has been unusually volatile over the last 4 months and the wide range has undoubtedly left many traders stopped out of otherwise good trades. On this chart we use a weekly tenor and once again see a Wedge pattern formation. In this case it appear that the CAD will gain on the U.S Dollar with a break below Resistance on the lower half of the wedge. Note the number of touches against Wedge Support, suggesting that the upper Wedge line holds strong Support for the CAD. This is also consistent with our analysis above as the CAD is a deemed a commodity currency and should move in the same direction as Oil.


Many market observers point to this cross as a recent barometer for risk. A rising EUR suggests that market risk is diminishing while a stronger JPY implies a “risk off” sentiment. On this weekly chart below we see that the EUR is poised to break above strong price Resistance as well as trend Resistance. A solid close near 115. would likely propel the EUR forward while an inability to break Resistance implies risk aversion may return an usher in a fresh wave of volatility with it.

Written by bforex.com