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 February 2016
This month, we forecasted that the USD will rise against the GBP, CHF and EUR, suggesting long USD/CHF and short EUR/USD trades. The performance of the forecast overall so far has been a little negative:
Weekly Forecast 28th February 2016
We made no forecast last week.
This week, we forecast that CAD/JPY will fall in value and EUR/CAD will rise in value.
This week has seen strength primarily in the Canadian Dollar, as well as in the Swiss Franc and U.S. Dollar. The British Pound fell heavily and has more momentum behind it than any other major global currency. It is hard to say what is going to happen next as the market is going through a period of flux but short British Pound looks like a high-probability position.
Volatility was higher than the previous week, with two-thirds of the major and minor currency pairs changing in value by more than 1%. Volatility is likely to be about the same this week and possible even higher as we may see some month-end flows.
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 one of these key pairs last week off key support and resistance levels could have worked out:
AUD/USD
We had expected the level at 0.7245 might act as resistance, as it had acted previously as both support and resistance. Note how these “flipping” levels can work really well. It is also very close to a key psychological level of 0.7250. The H4 chart below shows how during last week there were two potentially profitable short trades off this level marked by the down arrows. The first trade was after two pin candles, the second one was after a bearish engulfing candle. Both would still be open and in profit well in excess of risk.
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.