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 5th June 2016
Last week I wrote that the key currencies until the Non-Farm Payroll release at the end of the week would be likely to be the AUD and GBP. This did turn out to be true. I recommended short AUD/USD and long GBP/USD but these did not work out well, even before the NFP. The NFP release has changed the position of the USD radically, with no serious prospect now of a rate hike happening any time soon and a much weaker USD, so the long-term bearish USD trend should now broadly continue.
This week is a much easier prediction as we have a strong trend aligned with sentiment which is short USD. The strongest currencies to be long of against the USD look to be the JPY, the EUR and the CAD.
Fundamental Analysis & Market Sentiment
Fundamental analysis has become more useful in the Forex market now as the USD is seriously weakened by a data-driven central bank being driven away from a previously anticipated rate hike by very poor economic data. This has just happened, so sentiment is likely to continue to reflect this same position over the next few days.
The Japanese Yen has been the strongest currency this week. This is probably mostly due to a delay in the imposition of a new sales tax causing a money flow into the currency.
The Australian Dollar remains weak following the input of recent weeks from the RBA suggesting further rate cuts are increasingly likely in the near future.
The Canadian Dollar is quite strong as the price of oil has continued its recovery over recent weeks. However the price may find the $50 level a tough barrier to cross so I am somewhat dubious about the Canadian Dollar’s immediate strength.
Technical Analysis
USDX
The U.S. Dollar fell strongly last week, printing very bearish candle which completely engulfed the price action of the past three weeks. It again closed at a price lower than the prices from both three months and six months ago, indicating the greenback remains in a downwards trend which never ended even during the recent price rise.
USD/JPY
Looking at the major pairs, probably the best one for exploiting any continuation of U.S. Dollar weakness will be the USD/JPY pair. It is a strong long-term trend, and the JPY enjoys bullish sentiment right now with the price approaching multi-year lows.
EUR/USD
The next pair to look at for exploiting USD weakness would logically be the EUR/USD currency pair. Although the trend is a bit rough and choppy, and the area around 1.1400 to 1.1500 has been a strong cap over the previous 18 months, it still looks interesting for USD bears.
Conclusion
Bearish on the USD, bullish especially on the JPY and also on the EUR.