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 January 2016
This month, we forecasted that the USD will rise against the GBP, CHF and CAD, suggesting long USD/CHF and USD/CAD and short GBP/USD trades. The performance of the forecast overall so far has been very positive:
Monthly Forecast February 2016
This month, we forecast that the USD will strengthen against the GBP, CHF, and EUR.
Weekly Forecast 31st January 2016
Last week, we forecasted that AUD/USD would fall, and USD/CAD rise, as at the close of the week. Unfortunately both of these trades came in at an average loss of 1.14%.
We make no forecasts this week, as there are no pronounced counter-trend movements.
This week has seen strength in the Australian and Canadian Dollars, as well as the Euro, and weakness in the Japanese Yen, Swiss Franc and British Pound. In spite of this mix, as the Euro cannot break up past 1.10 against the USD, it looks as if all the major European currencies are going to weaken, with the USD being the most solid anchor as a long counterpart.
Volatility was lower than the previous week, with just under 50% of the major and minor currency pairs changing in value by more than 1%. Volatility is likely to be similar this week.
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:
GBP/USD
We had expected the level at 1.4205 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 Tuesday’s London session, the price pushed down below that level before rising quickly with a very bullish engulfing candle marked by the up arrow. Note how both it and the previous candle had quite long lower wicks. This trade unfortunately only produced a maximum reward to risk ratio of a little more than 1:1.
USD/CAD
We had expected the level at 1.4313 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 early London session, the price rejected that level quite markedly, forming a very bearish outside candle marked by the down arrow, which closed right on its low and fell quickly. This trade would still be open and have given an excellent reward to risk ratio of more than 5:1 so far.
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.