Dear FX Academy Member,
Each week we like to send out our thoughts on the Forex market, not only to highlight potential trade set-ups for you to watch out for, but also to enhance your learning with some real-time market analysis. 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 November 2016
This month we forecast that the highest-probability trade will be long USD/JPY.
Weekly Forecast 4th December 2016
Two weeks ago, we made no forecast.
This week, we again make no forecast, as the only strong counter-trend movement was in GBP/JPY, but this push looks likely to continue.
This week has been dominated by relative strength in the British Pound and Canadian Dollar, and relative weakness in the U.S. Dollar and Japanese Yen. It is the weakness of the Yen that stands out most strongly.
Volatility was about the same as it was last week, with 52% of the major and minor currency pairs changing in value by more than 1%. Volatility might well begin to rise again over this coming week, as there is a heavier news schedule, including input from several major central banks.
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 1.0666 might act as resistance, as it had acted previously as both support and resistance. Note how these “flipping” levels can work well. The H1 chart below shows the how the price hit this level during the Asian session and then again during the early London last Monday, a time which can be crucial for this currency pair. Entry was signaled by the large bearish engulfing candle which formed immediately as the price was hit, marked by the second down arrow within the chart below. This second short trade gave a maximum reward to risk ratio of about 2 to 1 so far, if the stop had been placed just above the swing high at the entry candlestick.
USD/CAD
We had expected the level at 1.336 2might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work well. The H1 chart below shows the how the price hit this level late during the opening of the New York session last Wednesday, a time which can be crucial for this currency pair. Entry was signaled by the small bullish inside candle which formed immediately as the price was hit, marked by the up arrow within the chart below. This long trade gave a large maximum reward to risk ratio of about 2 to 1, if the stop had been placed just below the swing low at the entry candlestick.
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.