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 June 2016
This month, we forecast that the best movements will be short USD/JPY, and long EUR/USD.
Weekly Forecast 5th June 2016
Last week, we made no forecast.
This week, we make no forecast, as there were no strong counter-trend movements except in the GBP/CHF, but it does not look strong enough to trade.
This week has been dominated by a renewed great weakness in the U.S. Dollar and strength in the Japanese Yen, Euro, and New Zealand Dollar.
Volatility was considerably higher than it was last week, with about 70% of the major and minor currency pairs changing in value by more than 1%. Volatility is likely to be 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:
GBP/USD
We had expected the level at 1.4414 might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work really well. The H4 chart below shows the price fell quite strongly down to this level, before forming a bullish pin candle which contained two subsequent inside candles. It took a while to happen, but the price finally turned and rose strongly. The maximum reward that could have been achieved in this trade was about 160 pips, a reward to risk ratio of approximately 4 to 1 if the stop had been placed just below the swing low.
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 H4 chart below shows how a lot of patience and confidence is sometimes required to exploit these levels. Here, a bearish inside candle formed immediately, but did not break down during the next candle. Eventually, the high was broken, triggered many stops from the first short entry, but then giving a true run down following a very strong bearish engulfing candle marked by the down arrow. Such a late entry would have required a very wide stop loss of about 100 pips, but the maximum reward to risk ratio achieved so far on that trade would be closer to 2:1 than 1:1.
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.