Quantitative Forecast
Academic studies have shown that the most reliable way to determine future price movements from past price movements, is by use of momentum.
In the Forex market, a momentum study is best applied to the four major Forex currency pairs by simply checking whether the weekly close is above or below the weekly close 13 weeks ago.
If the price is higher, the statistical edge is in trading that pair long.
If the price is lower, the statistical edge is in trading that pair short.
On this basis, the quantitative momentum forecast for the edge during the coming week is as follows:
Technical Forecast
The question as to whether an experienced chart-reading technical analyst can outperform a simple momentum model warrants a live experiment. Looking at the weekly charts for each of the four major pairs, I will try to determine the line of least resistance, and forecast the directional edge using my own technical analysis.
On this basis, my technical analysis forecast for the edge during the coming week is as follows:
Last week saw some continuing momentum in the direction of the bullish USD trend. However the JPY strengthened again this week, and has again failed to make a significant new high. It closed this week with a bearish weekly candle; therefore technically I am forecasting a fall in USD/JPY over the coming week. Regarding the other pairs, there is no obvious strong support or resistance blocking a continued advance of the USD, so my technical forecast for those pairs follows the quantitative momentum forecast. The big change is the new strength in the CHF, which looks stronger than the USD both technically and quantitatively. However, the volatility in the CHF is likely to remain high for a while, so I would be wise to trade the CHF in very small position sizes.
Summary
The quantitative and technical forecasts agree with the exception of USD/JPY.
Next week, we will review how these forecasts performed.
Previous Forecasts
These forecasts have been running for 6 weeks.
Last week, both the technical and quantitative forecasts were wrong about the USD/CHF rising, and the technical forecast was superior to the quantitative forecast in seeing the USD/JPY as more likely to fall than rise.
The running totals of the forecasts after 6 weeks so far are as follows:
Both forecasts have performed negatively to date, due to the very sharp and historically unprecedented counter-trend move in the CHF last week. If not for this move, the Quantitative forecast would be performing well.