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 / Weekly Forecast January 2016
This month we forecast that the highest-probability trade will be short GBP/USD. Last week ago, forecast that the AUD/JPY currency cross would rise in value. It did so, by 0.18%. This week, we make no forecast, as there were no strong counter-trend movements last week. This week has been dominated by relative strength in the Canadian Dollar, and relative weakness in the U.S. Dollar. Volatility was very low so these numbers should not be taken seriously. Volatility was considerably lower than it was last week, with not one of the major and minor currency pairs changing in value by more than 1%. Volatility will almost certainly be considerably higher over this coming week, as the New Year begins with major U.S. economic data releases. 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 1.0479 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 early part of the London session last Wednesday, just as the market came back after the holiday break. This can be a very important time in the Forex market. Entry was signaled by the bearish inside 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 about 10 to 1, if the stop had been placed just above the swing high at the entry candlestick.
USD/JPY
We had expected the level at 116.28 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 during the early part of the London session last Thursday. Entry was signaled by the bullish doji candle which formed immediately after the price was hit, marked by the up arrow within the chart below. This long trade gave a maximum reward to risk ratio of about 2 to 1.
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.