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 May 2021
For the month of May, we forecasted that the USD/CAD currency pair would fall in value, and the CAD/JPY currency cross would rise in value. The performance so far has been positive:
Weekly Forecast 9th May 2021
Last week, we made no weekly forecast, as there were no unusually strong counter-trend price movements in the Forex market. This week, we again make no forecast.
The Forex market showed an unchanged level of volatility last week, with 26% of the important currency pairs and crosses again moving by more than 1% in value. Volatility is likely to fall over the coming week.
Last week was dominated by relative strength in the Canadian 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 two of last week’s key levels would have worked out:
EUR/USD
We had expected the level at 1.1994 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 inside candlestick which was also a pin bar just at the open of last Wednesday’s London session, marked by the up arrow in the price chart below, which is typically a good time to be trading major pairs involving a European currency such as this one in the Forex market. This trade has been very profitable, achieving an excellent maximum positive reward to risk ratio so far of more than 11 to 1 based upon the size of the entry candlestick structure.
AUD/USD
We had expected the level at 0.7683 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 inside candlestick halfway through last Wednesday’s New York session, marked by the up arrow in the price chart below, which is typically a good time to be trading the Forex market. This trade has been nicely profitable, achieving a maximum positive reward to risk ratio so far of more than 5 to 1 based upon the size of the entry candlestick structure.
