The difference between success and failure in Forex trading is very likely to depend upon which currency pairs you choose to trade each week, and not on the exact trading methods you might use to determine trade entries and exits. Each week I am going to analyze fundamentals, sentiment and technical positions in order to determine which currency pairs are most likely to produce the easiest and most profitable trading opportunities over the next week. In some cases it will be trading the trend. In other cases it will be trading support and resistance levels during more ranging markets.
Big Picture 20th December 2015
Last week I highlighted long USD/CAD as the probable best trade of the week. This was a good call as the pair continued its explosive move upward, closing the week up by 1.77%. I had forecast that if the Fed raise rates it should continue to rise strongly and this is exactly what happened.
This week I again see the best opportunity as long USD/CAD. It is in a very strong bullish trend and has continued to make new 11 year highs. I also see short GBP/USD as having some good potential but the move down may be quite choppy and also may be limited at about 1.4500.
Keep in mind that this week sees the last few days before the Christmas holiday starts, and that many market professionals particularly in Europe may be on holiday now until the New Year or at least until early next week. There is little key news due and as such it may be a quiet week. However we seem to having a trending December so I sense it is likely the positive USD trend will continue.
Fundamental Analysis & Market Sentiment
The strong currency is the USD. The fundamental data could be stronger, however there have been no bad surprises and we now seem to be set on a course of gradual rate rises. The position technically for the USD also looks strong. The currency is now trading higher than it was 6 months ago against every major global currency except the JPY.
Weaker currencies are a little less clear but there are two that stand out: the CAD and the GBP. European currencies in general are fairly weak.
Canadian fundamentals are poor and the price of oil, with which the currency is very highly positively correlated, has fallen to new multi-year lows. Although there has been something of a recovery in recent economic data releases, the economic picture going forward is far from rosy. The Bank of Canada recently stated that it would theoretically consider negative real interest rates should another financial crisis arise, which probably contributed to the latest round of weakening of the currency.
British fundamentals are also looking dubious as despite good spending numbers last week, the Bank of England is seen as unlikely to raise rates any time soon.
Technical Analysis
USD/CAD
The price action looks extremely bullish, with a very strong move up over this past week to reach new 11 year highs. There is no obvious resistance before the key round number of 1.4000, which was a key swing and monthly high in May 2004. Note that this number was just hit, from where it fell after turning there almost to the pip.
GBP/USD
This pair fell sharply over the past week, continuing a clear longer-term downwards trend, with the sharp move down following dovish talk from the Bank of England. However we are starting to approach some key supportive levels at around 1.4800 and 1.4700. Note how 1.4500 has tended to act as a floor for this pair over many years.
The safest trade of the week is probably long USD/CAD.