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 8th May 2016
Last week, we forecasted that the GBP/AUD currency cross would fall in value. In fact, it rose by 1.94%.
We make no forecast this week.
This week has seen strength in the U.S. Dollar, and weakness everywhere else except the Euro, especially in the commodity currencies. Stocks are also falling.
Volatility was similar 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 two of these key pairs last week off key support and resistance levels could have worked out:
EUR/USD
We had expected the level at 1.1394 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 bullish bounce the first time it touched this level, immediately forming a bullish inside candle that broke to the upside. The maximum reward so far would be about 60 pips, a reward to risk ratio of approximately 2.5 to 1 if the stop had been placed below the swing low.
EUR/JPY
We had expected the level at 123.19 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 how, if we ignore the initial spike, the price made a bearish bounce the first time it touched this level, immediately forming a bearish inside candle that broke to the downside. Although the level was retested, it held convincingly. The maximum reward so far would be about 150 pips, a reward to risk ratio of approximately 3 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.