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 February 2016
This month we forecast that the highest-probability trades will be long AUD/USD and NZD/USD.
Weekly Forecast 5th February 2017
Last week, we made no forecast, as there were no strong counter-trend movements.
This week, we again make no forecast, as the only strong counter-trend movements were in the Japanese Yen, but the move is a strong medium-term trend.
This week has been dominated by relative strength in the Japanese Yen and in the commodity currencies, and relatively weakness in the British pound and U.S. Dollar.
Volatility was very slightly higher than last week, with 52% of the major and minor currency pairs changing in value by more than 1%. Volatility is likely to be lower over this coming week, or perhaps about the same. 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/CHF
We had expected the level at 1.0043 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 around the New York open last Monday, which can be a significant time of day for USD-based currency pairs such as this one. Entry was signaled by the bearish outside candle which formed immediately after the price was hit, marked by the down arrow within the chart below. This long trade gave an excellent maximum reward to risk ratio of more than 5 to 1 to date, 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.
