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 Forecasts July/August 2016
This month we forecasted that the best movements will be short GBP/USD and USD/JPY. The performance so far is positive, as shown below:
For the month of August, we continue with the same forecast.
Weekly Forecast 31st July 2016
Last week, we made no forecast.
This week, we make no forecast, as there were no strong counter-trend moves.
This week has been dominated by weakness in the U.S. Dollar, and strength in the Japanese Yen.
Volatility was greater than it was during the previous week, with approximately half of the major and minor currency pairs changing in value by more than 1%. Volatility is likely to be similar over this coming week, which will be dominated by U.S. Non-Farm Payrolls data, as well as British and Australian central bank actions.
You can trade our forecasts in a real or demo Forex brokerage account.
Key Support/Resistance Levels for Popular Pairs
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/CHF
We had expected the level at 0.9844 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 had rejected this level several times, as shown in the chart below. The trade set up with a bullish pin candle triggering a very good entry at the upwards arrow, giving a maximum reward to risk ratio of more than 6 to 1 if the stop had been placed just below the swing low.
AUD/USD
We had expected the level at 0.7420 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 how just after last week’s FOMC announcement, the price was pushed down to this level where it reversed right to the pip. The trade set up with a very bullish outside candle triggering a good entry at the upwards arrow, giving a maximum reward to risk ratio of about 1.5 to 1 if the stop had been placed just below the swing low.
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.