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. The overall performance so far has been negative:
Weekly Forecast 15th May 2016
Last week, we made no forecast.
This week, we make no forecast, as there were no strong counter-trend movements last week.
This week has seen strength in the U.S. Dollar and Swiss Franc, and weakness everywhere else, especially in the Japanese Yen. Stocks are also falling.
Volatility was much less than it was last week, with about 81% of the major and minor currency pairs changing in value by less than 1%. Volatility is likely to be considerably higher 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 two of these key pairs last week off key support and resistance levels could have worked out:
USD/CAD
We had expected the level at 1.3005 might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work really well. The H1 chart below shows the price made a very attractive bearish pin candle the first time it touched this level just as London closed for the day, breaking to the downside. The maximum reward so far would be about 220 pips, a reward to risk ratio of approximately 8 to 1 if the stop had been placed just above the swing high.
AUD/JPY
We had expected the level at 80.56 might act as resistance, as it had acted previously as both support and resistance. Note how these “flipping” levels can work really well. The H1 chart below shows the price made a very attractive bearish inside candle the first time it touched this level just as New York closed for the day, breaking to the downside. The maximum reward so far would be about 160 pips, a reward to risk ratio of approximately 10 to 1 if the stop had been placed just 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.