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 December 2016
This month we forecasted that the highest-probability trade will be long USD/JPY. So far, this trade has performed very positively, as shown in the table below:
Weekly Forecast 18th December 2016
Last week ago, we made no forecast.
This week, we again make no forecast, as there were no strong counter-trend movements.
This week has been dominated by relative strength in the U.S. Dollar, and relative weakness in the Japanese Yen and New Zealand and Canadian Dollars. It is the weakness of the Yen that stands out most strongly.
Volatility was just a little higher than it was last week, with 48% of the major and minor currency pairs changing in value by more than 1%. Volatility will probably be lower over this coming week, as there is a light news schedule, including a possible wind-down as the Christmas holiday approaches in many financial centers.
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 one of these key pairs last week off key support and resistance levels could have worked out:
USD/JPY
We had expected the level at 114.77 might 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 twice during the week, holding and finally launching upwards strongly following the second touch during the early part of last Thursday’s New York session. Entry was signaled by the bullish engulfing candle which formed immediately as the price was hit, marked by the up arrow within the chart below. This long trade gave a maximum reward to risk ratio of a little more than 12 to 1 so far, 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.