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 20 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 weekly counter-trend movements by currency pairs made during the previous week.
Carry Trade: 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 2021
For the month of December, we forecasted that the GBP/USD and EUR/USD currency pairs will fall in value. The performances to date are shown below:
Currency Pair | Forecast Direction | Interest Rate Differential | Performance to Date |
EUR/USD | Short ↓ | +0.25% (0.25% - 0.00%) | +0.19% |
EUR/USD | Short ↓ | +0.15% (0.25% - 0.10%) | +0.22% |
Weekly Forecast 12th December 2021
In our previous forecast last week, we made no weekly forecast, as there were no unusually strong counter-trend movements during the previous week. Last week, the AUD/USD currency pair made a very strong countertrend move, but I do not believe in fading this currency pair short as the move is based upon improving risk sentiment which I believe is likely to continue, so we again make no weekly forecast. Fading strong weekly counter-trend price movements is the basis of our weekly trading strategy.
The Forex market saw a small increase in its level of directional volatility last week, with 33% of all the important currency pairs or crosses moving by more than 1% in value. Directional volatility is likely to increase next week due to the substantial number of high-impact data releases which scheduled for release.
Last week was dominated by very high relative strength in the Australian dollar, some strength in the Canadian dollar, and relative weakness in the Japanese yen, Swiss franc, and US dollar.
You can trade our forecasts in a real or demo Forex brokerage account.
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.
Currency Pair | Key Support / Resistance Levels |
AUD/USD | Support: 0.7159, 0.7123, 0.7083, 0.7051 Resistance: 0.7205, 0.7271, 0.7302, 0.7321 |
EUR/USD | Support: 1.1302, 1.1267, 1.1229, 1.1195 Resistance: 1.1327, 1.1394, 1.1456, 1.1514 |
GBP/USD | Support: 1.3255, 1.3239, 1.3141, 1.3079 Resistance: 1.3310, 1.3414, 1.3523, 1.3606 |
USD/JPY | Support: 113.28, 113.07, 111.55, 111.23 Resistance: 113.79, 114.16, 114.53, 115.25 |
AUD/JPY | Support: 80.68, 80.50, 79.81, 78.59 Resistance: 81.90, 82.17, 82.68, 84.14 |
EUR/JPY | Support: 127.44, 126.88, 126.65, 126.43 Resistance: 128.42, 128.71, 129.56, 130.03 |
USD/CAD | Support: 1.2680, 1.2637, 1.2611, 1.2571 Resistance: 1.2733, 1.2847, 1.2990, 1.3000 |
USD/CHF | Support: 0.9072, 0.9000, 0.8969, 0.8943 Resistance: 0.9215, 0.9271, 0.9370, 0.9387 |
Let us see how trading reversals from two of last week’s key levels could have worked out:
EUR/USD
We had expected the level at 1.1229 might function 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 during last Tuesday’s London/New York overlap session, typically a great time to enter new trades in major currency pairs, marked by the up arrow in the price chart below. This trade has been nicely profitable, achieving a maximum positive reward to risk ratio of more than 4 to 1 based upon the size of the entry candlestick structure.
USD/CHF
We had expected the level at 0.9271 might function 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 engulfing candlestick during last Tuesday’s London/New York overlap session, often a good time to enter a new trade in a major Forex currency pair such as the USD/CHF, marked by the down arrow in the price chart below. This trade has been profitable so far, achieving a maximum positive reward to risk ratio of more than 2 to 1 based upon the size of the entry candlestick structure.
That is all for this week. You can trade our forecasts in a real or demo Forex brokerage account to test the strategies and strengthen your self-confidence before investing real funds.