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 the USD weaken significantly very suddenly, and although the currency rebounded very quickly, it ended the week significantly weaker across the board. For the first time in a long while, the quantitative analysis shows the USD as weaker than the JPY. These are potentially significant developments.
[CAD:FXAcademy CTA #121]Summary
The quantitative and forecast sees the USD as strengthening against all the majors with the exception of the JPY.
The technical forecast is significantly different, seeing the Euro and British Pound as more likely than not to end the week up against the U.S. Dollar.
Next week, we will review how these forecasts performed.
Previous Forecasts
These forecasts have been running for 14 weeks.
Last week, the technical and quantitative forecasts were identical, and produced completely inaccurate results, as all predictions were for a stronger U.S. Dollar. The USD actually weakened across the board. These results were as follows:
The running totals of the forecasts after 14 weeks so far are as follows:
Both forecasts have performed negatively to date, due solely to the very sharp and historically unprecedented counter-trend moves in the CHF over the previous several weeks. Excluding the USD/CHF pair, both have been performing positively, but the Quantitative forecast has performed somewhat better.