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 a further continuation of the pull back against the long-term bullish USD trend. The GBP has continued to strengthen. The CHF had looked set to reverse but continued to weaken. For the second week running, my technical forecast agrees with the quantitative forecast, with the exception of GBP/USD which looks like it is going up with strong momentum. The other pairs do not look like bucking the prevailing trend with strong probability.
Summary
The quantitative and technical forecasts agree that the USD will strengthen against the EUR, JPY and CHF, but technically I see the GBP as likely to strengthen against the USD next week.
Next week, we will review how these forecasts performed.
Previous Forecasts
These forecasts have been running for 9 weeks.
Last week, the quantitative forecast was completely wrong. The Technical forecast did correctly predict that the GBP would rise against the USD, but otherwise followed the quantitative forecast.
The running totals of the forecasts after 9 weeks so far are as follows:
Both forecasts have performed negatively to date, due primarily to the very sharp and historically unprecedented counter-trend moves in the CHF over the previous month. However even ignoring that move, both forecasts would still be performing negatively, although the quantitative forecast has been performing better.