Normally, these pairs move inversely to each other. On average, high VIX scenarios in NY and London are followed up by low VIX in the NY afternoon sessions. Bollinger Bands (BB) picks up noise in low VIX scenarios, it seeks to contain price action rather than direct it. I use a 28-period SD 2 BB on a 5 minute chart). If EUR bines are too rich in premiums, I’d look at the JPY’s relationship to its strikes like I did this afternoon, since it probably will exhibit the same noise. Due to the differenences that prices are related to their strikes, the JPY is an adequate inverse substitute.
At 1:55pm EST, the 4pm 117.75 USD/JPY bine may have been around 40. This was around 117.75 which as between the R1 and R2s for MAJO. Previously at 12.25 and especially at 1:10, USD/JPY came off severly from around this level. Around 2pm, the top BB line was falling as well as the BB’s bottom line was rising. If USD/JPY didn’t go above the 117.75, and this was within the MAJO R1 and R2 area, most likely the market was saying it that this was the resistance level. Either you would of sold a 4pm JPY bine at the 117.75 strike; bought the 117.50 at the retreat, or dug in deep at 3pm for both when VIX, as illustrated by the collapsing BB levels, were implied price neturality. Sold the 117.75 and buy the 117.50 at that point. Once again, support and resistance levels, as always, are ranges; the market refines these ranges, then strikes are identified for bine set-ups.
Filed under: resistance, support
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