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 16th July 2017
Last week, I saw the best possible trades for the coming week as long EUR/JPY and long CAD/JPY. The results here would have been very negative overall, with the EUR/JPY falling by 0.63%, and the CAD/JPY rising by 0.56%. This would have produced an overall average negative result of -0.04%.
The Forex market is now in a more settled mood, with a re-emergence of clear trends, and breakouts into multi-month or even multi-year highs on a few Forex pairs, all against the U.S. Dollar. This comes as sentiment sours on the U.S. Dollar following more dovish than expected testimony by Janet Yellen, Chair of the Federal Reserve, before Congress last week.
This week I forecast that the highest probability trades will be long of the Canadian and Australian Dollars, as well as the Euro, and short of the U.S. Dollar.
Fundamental Analysis & Market Sentiment
The major element affecting market sentiment at present is the view that almost all major central banks have now indicated they are on courses of tightening monetary policy, but with much more pessimism concerning the U.S. Dollar as the Federal Reserve has now signaled a slower pace of monetary tightening. This has left the U.S. Dollar with clear weakness in the Forex market, which was reinforced by Friday’s weak inflation data which boosted the dovish case.
The Canadian Dollar has been particularly strong this week following a quarter-point rate hike by the Bank of Canada, and there is now a strongly bullish trend in the Canadian Dollar on all time frames.
Technical Analysis
U.S. Dollar Index
This pair printed a very strongly bearish outside candlestick, closing right on its low and making a new 8-month low price. There is a clear long-term bearish trend and the price has carved out new resistance above, while closely following a dominant bearish trend line. However, there is a key support level at 12012 which may prevent the USD from falling much further, at least over the short term.
EUR/USD
This pair printed a bullish engulfing candlestick, closing near its high and making a new 14-month high price. There is a clear long-term bullish trend and the price is trading in “blue sky”. However, there are key long-term resistance levels not far ahead which may prevent the price from rising much further, at least over the short-term.
AUD/USD
This pair printed a very strong “breakout” bullish engulfing candlestick, closing right on its high and making a new 15-month high price. There is a clear long-term bullish trend and the price is trading in “blue sky”. However, there is a key inflection point of 0.7835 just ahead which may act as resistance and prevent the price from rising much further, at least over the short-term. Nevertheless, technically, this upwards movement looks as if it has further to run in the near term.
USD/CAD
This pair printed a strongly bearish candlestick, closing right on its low and making a new 14-month low price. There is a clear long-term bearish trend with the movement of the past few weeks being of good bearish quality. The price has almost reached “blue sky”. However, there is a key inflection point of 1.2461 not far away which may act as support and prevent the price from falling much further, at least over the short-term.
Conclusion
Bullish on the Euro, Australian and Canadian Dollars; bearish on the U.S. Dollar.