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 May 2017
This month we forecasted that the highest-probability trades would be long GBP/USD and USD/CAD. The overall performance to date has been very slightly negative:
Weekly Forecast 14th May 2017
Last week, we made no forecast, as there were no strong counter-trend movements.
This week, we make no forecast, as again there were no strong counter-trend movements.
This week has been dominated by relative strength in the U.S. Dollar, and relative weakness in the Swiss Franc.
Volatility was again much lower than last week, with only 1 of the major and minor currency pairs changing in value by more than 1%. Volatility is likely to again be low 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 two of these key pairs last week off key support and resistance levels could have worked out:
AUD/USD
We had expected the level at 0.7331 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 close to the London Open last Tuesday, immediately forming a bullish pin bar, which broke on the very next candle. This provided an entry, marked by the up arrow shown in the chart below. This long trade has given a respectable maximum reward to risk ratio of almost 3 to 1 to date, if the stop had been placed just below the swing low at the entry candlestick.
AUD/JPY
We had expected the level at 84.03 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 session last Tuesday. There was a bearish inside candle providing an entry, marked by the down arrow shown in the chart below. This short trade gave a satisfactory reward to risk ratio of about 1.5 to 1, 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.