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:
Monthly Forecast November 2022
I made no forecast for the month of November, as I thought markets had become too unsettled to look beyond the next few days. I think this was a good call insofar as a forecast in favor of the bullish US Dollar trend at the beginning of the month would have been disastrous.
Weekly Forecast 27th November 2022
Last week, I made no weekly forecast. This week, I again make no weekly forecast, as there were no unusually strong counter-trend price movements in the market last week.
The Forex market saw another strong decrease in directional volatility last week, with only 22% of the most important currency pairs and crosses moving by more than 1% in value. Directional volatility is likely to increase over the coming week as there are more high-impact events scheduled.
Last week was dominated by relative strength in the British Pound and the New Zealand 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.
Let us see how trading one of these key pairs last week off key support and resistance levels could have worked out:
EUR/JPY
I had expected the level at ¥146.05 might act as resistance in the EUR/JPY currency cross last week, as it had acted previously as both support and resistance. Note how these “role reversal” levels can work well. The H1 price chart below shows how the price rejected this level right at the end of last Wednesday’s Tokyo session (which can often be a great time to enter Forex trades in the Japanese Yen) with a bearish inverse hammer / shooting star candlestick, marked by the down arrow signaling the timing of this bearish rejection. This trade has been nicely profitable, achieving a maximum positive reward to risk ratio of more than 9 to 1 so far based upon the size of the entry candlestick.
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