This week I will begin with my monthly and weekly Forex forecast of the currency pairs worth watching. The first part of my forecast is based upon my 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 6 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:
Currency Price Changes and Interest Rates
Monthly Forecast August 2022
For the month of August, I forecasted that the EUR/USD currency pair would decline in value. The result so far is shown below:
Currency Pair | Forecasted Direction | Interest Rate Differential | Performance to Date |
|---|---|---|---|
EUR/USD | Short ↓ | +2.00% (2.50% - 0.50%) | -0.30% |
Monthly Forex Forecast Performance
Weekly Forecast 14th August 2022
This week, I forecast that the NZD/USD currency pair will fall in value over the week, as it made a strong counter-trend price movement last week.
The Forex market saw a much higher level of directional volatility last week, with 59% of all the important currency pairs or crosses moving by more than 1% in value. Directional volatility is likely to be at least a little lower over this coming week as although there are some key news releases scheduled, we are unlikely to see anything with as strong an impact on the market as last week’s US CPI data release.
Last week was dominated by relative strength in the Australian Dollar, and relative weakness in the US Dollar.
You can trade my forecasts in a real or demo Forex brokerage account.
Key Support/Resistance Levels for Popular Pairs
I 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: 0.7085, 0.7063, 0.7010, 0.6951Resistance: 0.7141, 0.7213, 0.7248, 0.7275 |
EUR/USD | Support: 1.0240, 1.0220, 1.0202, 1.0073Resistance: 1.0280, 1.0305, 1.0362, 1.0382 |
GBP/USD | Support: 1.2100, 1.1958, 1.1926, 1.1878Resistance: 1.2206, 1.2243, 1.2338, 1.2386 |
USD/JPY | Support: 133.11, 132.65, 131.73, 130.00Resistance: 134.41, 135.32, 135.82, 136.59 |
AUD/JPY | Support: 94.67, 94.39, 93.61, 91.88Resistance: 95.23, 95.54, 96.16, 96.39 |
EUR/JPY | Support: 136.49, 135.72, 134.97, 134.03 Resistance: 137.74, 138.53, 140.22, 141.14 |
USD/CAD | Support: 1.2684, 1.2619, 1.2587, 1.2372Resistance: 1.2818, 1.2866, 1.2880, 1.2924 |
USD/CHF | Support: 0.9372, 0.9306, 0.9280, 0.9224Resistance: 0.9451, 0.9510, 0.9564, 0.9593 |
Let’s see how trading one of these key pairs last week off key support and resistance levels could have worked out:
AUD/JPY
We had expected the level at 93.24 might act as support, as it had acted previously as both support and resistance. Note how these “role reversal” levels can work well. The H1 chart below shows how the price broke above this level right at the the start of last Monday’s Asian session, and then tested it and rejected it from above with an engulfing candlestick marked by the up arrow signaling the timing of the bullish bounce. This trade has been very profitable, achieving a maximum positive reward to risk ratio of more than 3 to 1 so far based upon the size of the entry candlestick structure.
AUD/JPY Hourly Price Chart
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