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 18 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 us 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 December 2020
For the month of December, we forecasted that the EUR/USD currency pair would be likely to rise in value. Its performance so far this month is as follows:
Weekly Forecast 13th December 2020
Last week, we make no weekly forecast, as there were no unusually strong counter-trend movements over the previous week.
This week, we forecast that the GBP/USD currency pair is likely to rise in value, due to its unusually sharp bearish retracement within a long-term bullish trend last week.
The Forex market showed a higher level of volatility compared to the previous week, with approximately 40% of the important currency pairs and crosses moving by more than 1% in value last week. Volatility is likely to remain at a similar level over the coming week.
Last week was dominated by relative strength in the Australian dollar, and relative weakness in the British pound.
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 can be watched on the more popular currency pairs this week.
Let us see how trading reversals from one of last week’s key levels would have worked out:
EUR/USD
We had expected the level at 1.2087 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 how the price rejected this level with a large bullish pin candlestick early during last Monday’s London session, which is typically a good time to be trading major Forex currency pairs such as this one. This trade was profitable, achieving a maximum positive reward to risk ratio of about 3 to 1 based upon the size of the entry candlestick.
