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 10th July 2016
Last week I predicted that the best trades for this week were likely to be short GBP against long Gold. The result of this trade was a large profit of 4.25%, which is an excellent move within only one week.
The focus of the market has moved to better than expected U.S. economic data which has led to global equity markets have been recovering. In fact the S&P500 Index closed just a few points off an all-time high. If this high is broken and maintained we are likely to see a continuing rally in equities.
It still looks attractive to stick with short GBP and long Gold. However it is also the case the NZD and JPY look strong so they can also be traded long against the USD.
Fundamental Analysis & Market Sentiment
Fundamental analysis will probably be of fairly limited use this week, although there is a fair amount of U.S. economic data releases towards the end of the week which, if strongly positive, could give further impetus to the rally.
Gold and Silver continue to look very strong but they have become increasingly volatile over the past few days so there could be some choppy action ahead.
The British Pound is down sharply, and continues to fall. There is some uncertainty as to whether a Brexit will actually happen, as the vote was not legally binding. The more likely a Brexit is to be implemented, the greater the chance that the GBP will fall further, so there is a strong element of political uncertainty that will affect sentiment on this currency, as well as any poor economic data that gets released which can be blamed upon an economic shock caused by the Brexit vote.
The Japanese Yen has been acting as a safe haven, so if the global equity market’s recovery rally runs out of steam, we can expect to see the currency strengthen further.
Technical Analysis
USDX
The U.S. Dollar did not really go anywhere last week, printing a small doji candle with a slightly larger upper wick. The price has closed above its level of 13 weeks ago, suggesting that the downwards trend is over. However the action is again suggestive of a resistant cap at 12000.
GBP/USD
The sheer momentum of the post-Brexit move suggests that the price is quite likely to reach new lows and perhaps finally find some support at a key psychological level such as 1.3000 or 1.2750, at least over the short term.
Everything will depend upon political developments in the U.K. making an eventual Brexit more or less likely, but in any case, the pound looks very vulnerable to further sharp falls.
GOLD
Gold also looks very bullish, again making a new high this week, which was also a fresh 2 year high. Beware of the resistance at $1391, which would be the next key resistant level.
USD/JPY
There is a strong downwards trend and the JPY has the greatest long-term strength of all the currency pairs right now. However we can see in the chart below that the low of two weeks ago has still not been exceeded, and that there is some support at around the psychologically key 100 level which has managed to hold.
The nearest key resistance level is at 101.46.
NZD/USD
This pair is making new 1 year highs and is interesting as the largest interest rate disparity of any major or minor USD currency pair. This has tended to boost action in the long direction.
Beware that the pair is reaching an area that was previously congested, as can be seen in the chart below.
