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 September 2016
This month we forecasted that the highest-probability trade will be long NZD/USD. The performance so far is as follows:
Weekly Forecast 11th September 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 Japanese Yen, and weakness in the Australian Dollar and British Pound.
Volatility was lower than it was during the previous week, with only about one quarter 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 likely be dominated by central bank actions from the Bank of England and the Swiss National Bank.
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 1.1177 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 how the price initially hit this level just at the beginning of the overlap of the Asian and European sessions last Monday, reversing immediately with a bearish inside doji candle marked by the downwards arrow. Placing the stop loss above the high of that candle would have provided a profitable short trade with a maximum reward to risk ratio of approximately 4 to 1.
EUR/JPY
We had expected the level at 113.95 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 how the price initially hit this level around the Tokyo open last Wednesday, a time which can be crucial for currency crosses or pairs involving the Japanese Yen such as the EUR/JPY currency pair. The price reversed immediately with a bullish doji candle marked by the green up arrow in the chart. This was the low price of the week. This long trade gave a maximum reward to risk ratio of more than 4 to 1 so far, 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.