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 21st May 2017
Last week, I predicted that the best trade for this week was likely to be long the British Pound and Euro, and short of the U.S. Dollar. I couldn’t have been more correct, unless I had picked the Swiss Franc instead of the British Pound. This combination trade was highly profitable from every angle, with EUR/USD rising by 2.52%, and the GBP/USD currency pair also rising, by 1.17%. This produced an average profit of 1.85%.
The Forex market is in a more settled mood, with clear trends against the U.S. Dollar and in favor of the Euro, British Pound, and Swiss Franc. Gold has also performed quite well. Therefore, I suggest that the best trades of the coming week will be long the Euro, Swiss Franc, and British Pound, and short of the U.S. Dollar.
Fundamental Analysis & Market Sentiment
The major elements affecting market sentiment at present are political instability in the U.S.A., which is hurting the U.S. Dollar, and sending a flow of money into safe-haven assets. There is also renewed optimism about the strength of the British economy following much better than expected retail sales data. These positions are unlikely to change before Wednesday, when new FOMC meeting minutes will become a major focus for the market. Leaks concerning allegations against the Trump administration may happen at any time and could shake sentiment further against the U.S. Dollar.
Technical Analysis
USDX
The U.S. Dollar printed a strongly bearish candle this week. It is a large candle closing right on its low. The bullish trend line is broken and has been rejected bearishly from the broken side. The price has broken convincingly below the formerly supportive level at 12203. The price is now below its historic levels from 3 months and 6 months, so has a long-term bearish trend. The signs could not be more bearish.
GBP/USD
The weekly chart below shows that this currency pair remains within an upwards trend, printing a bullish engulfing candle which has broken and closed above the strong resistance level of 1.3000, making a new 7-month high price. The price is also well above its recent historical levels from both and 3 and 6 months back. There is no reason not to remain bullish.
EUR/USD
The weekly chart below shows that this currency pair just broke bullishly above a bearish trend line which has formed and held over 1 year, as well as a big psychological number at 1.1000. This is a significant break by the bulls, producing a very large bullish candle closing right at its high. This pair was the center of the Forex market this week. The price is well above its levels of both 3 months and 6 months, so is now technically in a long-term bullish trend. There is a very high probability that there will be some more bullish momentum left in this move, which should see the price continue to rise over the short-term at least.
Conclusion
Bullish on the British Pound and Euro; bearish on the U.S. Dollar.