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 September 2018
In my previous piece last week, I forecasted that the best trades would be short AUD/USD and short NZD/USD. Unfortunately, these trades finished negatively: the AUD/USD currency pair rose by 1.87% over the past week, and the NZD/USD currency pair rose by 2.05%, producing an average loss of 1.96%.
Last week saw a rise in the relative values of the Australian and New Zealand Dollars, and a fall in the relative value of the Japanese Yen.
Last week’s Forex market was dominated by the increasing likelihood of a “no deal” exit from the E.U. by the U.K., and strong Canadian retail sales data, producing a more volatile market with stronger directional movements than have been seen over recent weeks.
Fundamental Analysis & Market Sentiment
Fundamental analysis tends to support the U.S. Dollar, as American economic fundamentals continue to look relatively strong. Sentiment has turned against the Dollar a little though, as inflation and PPI data both came in below consensus expectations. It is likely that markets will take a more negative sentiment on the British Pound.
The week ahead is likely to be dominated by key U.S. Dollar items, particularly the FOMC Statement and Federal Funds Rate, as well as final GDP data due later. The monthly input from the Reserve Bank of New Zealand is also due.
Technical Analysis
U.S. Dollar Index
The weekly price chart below shows that after last week’s continuing inability to rise above the resistance level at 12219, the price fell over the week, printing a bearish candlestick, albeit one with a meaningful lower wick. The Index bounced a little at the support level of 12085. As the price now seems stuck within a relatively narrow band between support and resistance and has remained within this zone over the past seven weeks, it seems the U.S. Dollar is firmly within a period of consolidation within an upwards trend, which is beginning to endanger the trend. This suggests a lack of direction and an inability to have any confidence in the likely price movement ahead.
AUD/USD
This pair is in a strong long-term downwards trend but rose sharply last week. Typically, very strong counter-trend pull backs such as this weekly move reverse quickly, so although it is probably worth waiting for a decisive bearish turn on a lower timeframe, it could be worth taking a short bias here. Another factor which makes this look plausible is the resistance level at 0.7321 which looks strong.
S&P 500 Index
Last week saw the major U.S. stock market index, the S&P 500, make a new all-time high price and close near its high. This is always a bullish combination. However, Friday was a clear down day, so it is probably worthwhile to wait for a new high price to be reached before going long.
Conclusion
Bearish on the AUD/USD; bullish on the S&P 500 Index above last week’s high price.