The difference between success and failure in Forex trading is very likely to depend upon which currency pairs you choose to trade each week, and not on the exact trading methods you might use to determine trade entries and exits. Each week I am going to analyze fundamentals, sentiment and technical positions in order to determine which currency pairs are most likely to produce the easiest and most profitable trading opportunities over the next week. In some cases it will be trading the trend. In other cases it will be trading support and resistance levels during more ranging markets.
Big Picture 23rd April 2017
Last week, I predicted that the best trade for this week was likely to be long the Japanese Yen, and short of the U.S. Dollar. This trade was a little unprofitable, as its price rose during the week by 0.36%.
The Forex market is in a less settled mood. The British Pound rose quite strongly following the Government’s calling of an early election which it is expected to win with a significantly increased majority. Another major item affecting the market is President Trump’s promise that he will unveil a detailed plan for “massive” tax cuts next week, which could boost the U.S. Dollar if the market likes it. advance, while the U.S. Dollar looks weak. Finally, the first round of the French Presidential election is being conducted today, with polls showing that a run-off between candidates of the far right and far left is a real possibility. So far this does not seem to be affecting the Euro negatively. It is hard to see how these factors will work out.
The most bearish currency in general against a long-term basket of currencies is now the U.S. Dollar, while the most bullish are the British Pound and the Japanese Yen. Therefore, I suggest that the best trade of the coming week will be long the British Pound and the Japanese Yen, and short of the U.S. Dollar.
Fundamental Analysis & Market Sentiment
The major elements affecting market sentiment this week are likely to be the result of the French election tonight and President Trump’s tax plan, if it is announced.
Technical Analysis
USDX
The U.S. Dollar printed another bearish engulfing candle this week, closing near its low, with a reasonably long real body. The bullish trend line is broken. The price is returning to an area I had identified as supportive, shown by the blue line in the chart below. The price still below its level from 3 months back. The signs are bearish, but it would not be a surprise if the bearish movement fails here, at least for a short while. Alternatively, a break below 12218 could trigger a sharp fall in the greenback and a more decisively bearish outlook.
USD/JPY
The weekly chart below shows that this currency cross is in a strong downwards trend, printing another arguably bearish candle, although it is a doji so it might suggest the next move will be a bullish pull back. The price is also well below its recent historical levels. The major factor standing in the way of a further fall would be the lower channel trend line shown in the chart below, which the price is now close to.
GBP/USD
The weekly chart below shows that this currency cross is in a strengthening upwards trend, printing a strongly bullish candle which broke out of a long-term consolidation area and made a new 6-month high. The price is also above its recent historical levels from both and 3 and 6 months. However, the candle has a reasonably large upper wick which suggests it might be a little overbought, at least in the short-term.
Conclusion
Bullish on the British Pound and Japanese Yen; bearish on the U.S. Dollar.