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 May 2016
This month, we forecasted that the best movements will be short USD/CAD and USD/JPY, and long EUR/USD.
Weekly Forecast 1st May 2016
Last week, we made no forecast.
This week, we forecast that the GBP/AUD currency cross will fall in value.
This week has seen dramatic strength in the Japanese Yen, and also some notable strength in the Canadian Dollar. There is strong weakness in the Australian and U.S. Dollar. The downwards trend in the U.S. Dollar is especially notable and there are in-trend movements against it to the benefit of the Japanese Yen and Canadian Dollar.
Volatility was similar to the previous week, with about 62% of the major and minor currency pairs changing in value by more than 1%. Volatility is likely to be at least slightly lower over this coming 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 one of these key pairs last week off key support and resistance levels could have worked out:
USD/JPY
We had expected the level at 110.74 might act as support, and also that the level at 111.81 might act as resistance, as they had each had acted previously as both support and resistance. Note how these “flipping” levels can work really well. The H1 chart below shows how these levels marked crucial price turning points during the week. The short trade following the rejection of the resistance at 111.81 by the engulfing candle following something of a pin candle was particularly powerful, as the maximum reward so far would be about 530 pips, a reward to risk ratio of 18 to 1 if the stop had been placed above the swing high!
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.