This week we’ll begin with our monthly and weekly forecasts of the currency pairs worth watching. The first part of our forecast is based upon our research of the past 11 years of Forex prices, which show that the following methodologies have all produced profitable results:
- Trading the two currencies that are trending the most strongly over the past 3 months.
- Assuming that trends are usually ready to reverse after 12 months.
- Trading against very strong counter-trend movements by currency pairs made during the previous week.
- Buying currencies with high interest rates and selling currencies with low interest rates.
Let’s take a look at the relevant data of currency price changes and interest rates to date, which we compiled using a trade-weighted index of the major global currencies:
Monthly Forecast December 2015
This month we forecast that the most probable movements are short GBP/USD and EUR/USD and long USD/CHF. The forecast has performed negatively so far, as shown below:
Weekly Forecast 20th December 2015
Last week, we forecasted that NZD/JPY, GBP/AUD and EUR/AUD would all move in opposite directions to their moves of the previous week. We were correct regarding all of them, with a total win of 2.80%.
This week, we note that there were no strong counter-trend movements, so we make no weekly forecasts.
This week saw strength in the USD and to a lesser extent the JPY. There is strong weakness in the CAD and also in the GBP.
Volatility was lower than the previous week. Approximately 60% of the major and minor currency pairs changed in value by less than 1%. Volatility is likely to also be even lower this week, as the Christmas and New Year holiday season begins.
You can trade our forecasts in a real or demo Forex brokerage account.
Key Support/Resistance Levels for Popular Pairs
At the FX Academy, we teach that trades should be entered and exited at or very close to key support and resistance levels. There are certain key support and resistance levels that should be watched on the more popular currency pairs this week, which might result in either reversals or breakouts:
Let’s see how trading two of these key pairs last week off key support and resistance levels could have worked out:
USD/JPY
We had expected the level at 120.50 might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work really well. The H4 chart below shows how during last Monday’s New York session, the price fell to touch this level, quickly respecting it with a wick followed by a bullish engulfing candle which immediately broke to the upside. The price rose steadily before topping very close to a key resistance level, giving a maximum reward so far of about 260 pips for a risk of about 60 pips.
EUR/USD
We had expected the level at 1.1053 might act as resistance, as it had acted previously as both support and resistance. Note how these “flipping” levels can work really well. The H4 chart below shows how during last Tuesday’s Asian session, the price rose to touch this level, quickly respecting it with a bearish doji candle which immediately broke to the downside. The price fell steadily but appears to have bottomed out very close to the support level at 1.0800, giving a maximum reward so far of about 200 pips for a risk of about 50 pips.
You can trade our forecasts in a real or demo Forex brokerage account to test the strategies and strengthen your self-confidence before investing real funds.