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 March 2016
Last week I highlighted long AUD/USD as a good trade for this week, and a short set-up on the USD/JPY as something that would be worth watching out for. This worked out very well as the AUD/USD pair has risen by 0.72% over the week, and the USD/JPY pair has fallen by 2.06%.
Fundamental Analysis & Market Sentiment
Fundamental analysis is not very useful in Forex markets at the moment. Sentiment is a much stronger price driver right now.
The feature that really stands out is the weakness of the U.S. dollar. This currency is usually the key to the Forex market, and when it is the big mover, it tends to make the market really jump. The market was very skeptical that the Federal Reserve would be able to raise interest rates, even though it had proclaimed that it intends to do so. Poor Average Hourly Wage data from three weeks ago was a fundamental peg to hang this sentiment on. In this past week the Federal Reserve cut its rate hike forecasts and this confirmed the market in its negative sentiment on the U.S. Dollar.
Additionally, sentiment continued to shift this week from risk-off to risk-on, and this is producing the most convincing rally in stocks and commodities – and hence in related currencies – that has been seen in many weeks.
Although opinion polls are still showing that a British vote to exit the European Union is a definite possibility to happen in the referendum due next June, the market is not treating this as a big enough factor to halt a strong upwards move in the price of the British Pound.
The Australian Dollar is worth a mention due to its great relative strength. Australian growth figures have been surprisingly high, with other factors pointing to a central bank that is probably not going to cut the interest rate in the near future.
Technical Analysis
USDX
The U.S. Dollar Index is moving down quite strongly, making new multi-month lows, and closing at a price below prices from both three months and six months ago for the first time since last October. This suggests that the best trend trades are likely to be against the U.S. Dollar in the near future.
AUD/USD
This pair broke out bullishly quite strongly three weeks ago, and continued to make a new 9 month high this week at 0.7680. It continued to rise this week by almost 1%.
It makes good sense to continue looking for long trades here, especially following any pullbacks to 0.7400 or below
USD/JPY
This pair has broken down through the lower trend line of its consolidating triangle, and also made a new multi-month low, but looks to have found support at 111.00. Therefore it seems that it is still really within its fairly long-term consolidation zone, and needs to get established below 111.00 before this can really be said to have changed. There are likely to be further opportunities for good short trades at 112.00 or above.
The safest trade of the week is probably going to be long AUD/USD.