This week we will 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 January 2021
For the month of January, we forecasted that the EUR/USD currency pair will be likely to rise in value. The performance to date is shown in the table below:
Weekly Forecast 24th January 2021
Last week, we made no weekly forecast, as there were no unusually strong counter-trend price movements in the Forex market over the previous week except the GBP/SEK. We were correct not to forecast that this currency cross would rise over the week although it met our technical requirements for a long trade.
This week, we again make no forecast, as there were no strong counter-trend movements in the Forex market whatsoever.
The Forex market showed a considerably lower level of volatility compared to the previous week, with not one of the important currency pairs and crosses moving by more than 1% in value last week. Volatility is likely to increase over the coming week.
Last week was dominated by relative strength in the New Zealand dollar, and relative weakness in the U.S. dollar.
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:
GBP/USD
We had expected the level at 1.3527 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 bullish doji candlestick structure during last Monday’s London session, marked by the up arrow in the price chart below, which is typically a good time to be trading major currency pairs such as this one. This trade has been very profitable, achieving a maximum positive reward to risk ratio of approximately 9 to 1 so far based upon the size of the entry candlestick.
