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 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:
Weekly Forecast 7th August 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 strength in the U.S. Dollar, and weakness in the British Pound.
Volatility was considerably less than it was during the previous week, with under one third of the major and minor currency pairs changing in value by more than 1%. Volatility is likely to be similarly light over this coming week, which will be dominated by New Zealand’s central bank action.
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:
EUR/USD
We had expected the level at 1.1234 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 the price came to within less than half a pip of this level before turning and falling strongly, as shown in the chart below. The trade set up with a bearish pin candle triggering a very good entry at the downwards arrow, giving a maximum reward to risk ratio of more than 17 to 1 if the stop had been placed just above the swing high!
AUD/USD
We had expected the level at 0.7493 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 RBA announcement, the price was pushed down to this level where it reversed strongly. The trade set up with a very bullish engulfing 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.