Watching Forex Volatility on Currensee
In my work with Thomson Reuters IFR Markets I’ve been watching the daily Bollinger Bands get increasingly narrow for NZD/USD. In fact, they haven’t been this narrow in years – the middle of 2008 to be specific, as the chart below shows.
make particular note of the BWI plot at the bottom of the chart. that is the Band Width Indicator, which takes the difference between the upper and lower Bands and divides it by the middle line (20-period simple average). that gives you the width in a percentage term which can be compared over time. make note of what happened following the last time the NZD/USD daily Bollingers were this narrow. the Forex market dropped about 500 pips in just about a straight line from the range breakdown, and much more after that initial decline.
You’ll also see N-ATR plotted on the chart. that is the normalized ATR reading, which means taking the ATR reading and dividing it by the 14-period simple moving average. Like with the BWI, that allows for historical comparisons. Notice that N-ATR was about as low at the start of 2010 as it had when BWI was at its lowest in 2008. It’s ticked up a bit since, but there’s plenty of room for further volatility expansion there.
Watching Forex Volatility on Currensee
