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 16 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 2018
For the month of May, we forecasted that the best trade would be long USD/SEK. The performance to date is as follows:
Currency Pair | Forecast Direction | Interest Rate Differential | Performance to Date |
USD/SEK | Long ↑ | 2.25% (1.75% - -0.50%) | 0.00% |
Weekly Forecast 21st May 2018
Last week, we forecasted that the SEK/JPY currency cross would fall in value. It did fall, by 0.66%.
This week, we make no forecasts, as there were no strong counter-trend movements.
This week has been dominated by relative strength in the Swiss Franc, and relative weakness in the Euro.
Volatility was only a little higher than it was last week, with approximately 15% of the major or minor currency pairs changing in value by more than 1%. Volatility is likely to be higher this week.
You can trade our forecasts in a real or demo Forex brokerage account.
Previous Monthly Forecasts
You can view the results of our previous monthly forecasts here.
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:
Currency Pair | Key Support / Resistance Levels |
AUD/USD | Support: 0.7494, 0.7479, 0.7453, 0.7400 Resistance: 0.7544, 0.7589, 0.7719, 0.7740 |
EUR/USD | Support: 1.1700, 1.1650, 1.1600, 1.1554 Resistance: 1.1786, 1.1875, 1.1897, 1.1937 |
GBP/USD | Support: 1.3400, 1.3348, 1.3307, 1.3221 Resistance: 1.3597, 1.3666, 1.3822, 1.3879 |
USD/JPY | Support: 110.58, 110.02, 109.61, 109.15 Resistance: 111.82, 112.06, 113.13, 114.18 |
AUD/JPY | Support: 83.39, 82.79, 82.02, 81.73 Resistance: 83.95, 84.21, 84.54, 84.83 |
EUR/JPY | Support: 130.09, 129.87, 129.36, 129.28 Resistance: 130.89, 131.10, 131.61, 134.12 |
USD/CAD | Support: 1.2841, 1.2793, 1.2750, 1.2650 Resistance: 1.2914, 1.2946, 1.2999, 1.3047 |
USD/CHF | Support: 0.9939, 0.9871, 0.9810, 0.9679 Resistance: 1.0111, 1.0149, 1.0191, 1.0207 |
Let’s see how trading one of these key pairs last week off key support and resistance levels could have worked out:
GBP/USD
We had expected the level at 1.3456 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 and rejected this level at about the same time as the New York open last Wednesday, a time of day which is often good for entering trades. It made a sharp rejection, printing a bullish engulfing candlestick which rejected the level decisively, signaling a long trade entry shown by the upwards arrow. This trade was not very successful, achieving a maximum positive reward to risk ratio of only about 1 to 1.
