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 December 2020
For the month of January, we forecast that the EUR/USD currency pair will be likely to rise in value.
For the month of December 2020, we made the same forecast. Its final performance at the end of last month was as follows:
Weekly Forecast 3rd 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.
We again make no forecast this week.
The Forex market showed a slightly higher level of volatility compared to the previous week, with just under 15% of the important currency pairs and crosses moving by more than 1% in value last week. Volatility is likely to be higher over the coming week as the Christmas and New Year holiday in many major markets comes to an end.
Last week was dominated by relative strength in the Australian 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:
USD/JPY
We had expected the level at 103.88 might act as resistance, 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 bearish inside candlestick structure during last Monday’s London/New York sessions overlap, marked by the down 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 profitable, achieving a maximum positive reward to risk ratio of approximately 8 to 1 so far based upon the size of the entry candlestick structure.
