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 strengthening of the USD across the board except against the CHF. There is a strong USD trend emerging but technically, with the exception of the USD/JPY pair, we are in areas of price that are likely to tend towards consolidation, which could slow trend movement.
Summary
The quantitative and technical forecasts are identical.
Next week, we will review how these forecasts performed.
Previous Forecasts
These forecasts have been running for 24 weeks.
Last week, the quantitative forecast performed slightly better than the technical forecast. The USD strengthened everywhere except against the CHF. The results were as follows:
The running totals of the forecasts after 24 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 recent months. Excluding the USD/CHF pair, both have performed positively, but the technical forecast has performed notably better.
This might suggest that trading strategies can perform best when they are guided mathematically but subjected to a human element which can act to overrule it when it “feels” wrong. So far, the human is beating the machine!