The Dollar is really taking it on the chin this morning and this may be just the beginning as I see a good number of crosses push into possible short term trending action (bearish on USD base crosses, e.g. EUR/USD, and bullish on USD counter crosses, e.g. GBP/USD). Clearly the Fed is going to fight this, as a weaker Dollar is beneficial to appreciating equities.
Today I will introduce an aspect of volatility that you most likely have not seen being addressed anywhere else: realized volatility profiles. First up let’s make sure you all understand what realized volatility (RV) is and how it compares to implied volatility (IV). Simply RV measures the amount and amplitude of price change observed in a financial instrument over time. Big moves to the up side and down side will both produce spikes in RV. As such the volatility we measure or predict always produces an unsigned return – it does not care whether the market goes up or down.
Frankly I have very little worth sharing today, and it’s not for a lack of trying. Having scanned through my entire charting universe over the past two hours I found very little worth consideration. Clearly equities are stumbling as we’re running a bit out of participation, which by the way has been pretty thin for the past few weeks, only emerging in sudden surges when necessary.
Last evening’s weakness in equities continued overnight and we are now finding ourselves back at the diagonal support line that has provided an entry base for the past month. Although well established it doesn’t mean that support is chiseled in stone here, which is why I am considering a binary setup. Here’s how we play it: