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 January 2016
This month we forecasted that the highest-probability trade would be short GBP/USD. The trade has performed positively so far:
Weekly Forecast 15th January 2017
Last week, we made no forecast, as there were no strong counter-trend movements.
This week, we again make no forecast, as the strong counter-trend moves look too much like reversals.
This week has again been dominated by relative weakness in the British Pound, and relative strength in the Japanese Yen and Australian Dollar.
Volatility was significantly higher than last week, with 59% of the major and minor currency pairs changing in value by more than 1%. Volatility is likely to be even higher over this coming week. 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:
AUD/USD
We had expected the level at 0.7369 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 New York sessions last Monday. This can be a very important time in the Forex market, especially for U.S. Dollar currency pairs such as this pair. Entry was signaled by the bearish engulfing candle which formed immediately after the price was hit, marked by the down arrow within the chart below. This short trade gave a maximum reward to risk ratio of only a little more than 1 to 1 though, if the stop had been placed just above the swing high 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.