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 January 2023
For the month of January, I forecast that the EUR/USD currency pair will rise in value and that the USD/JPY currency pair will fall in value.
In December, I forecasted that the EUR/USD currency pair would rise in value. The forecast performance was positive as follows:
Weekly Forecast 2nd January 2023
Last week, I made no weekly forecast. This week, I again make no weekly forecast, as there were no unusually strong truly counter-trend price movements in the market last week.
Directional volatility in the Forex market is likely to increase over the coming week as there are some high-impact data releases scheduled for this week, following last week’s quiet the Christmas and New Year holiday.
Last week was dominated by relative strength in the Japanese Yen, 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 monitored 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:
USD/CAD
I had expected the level at $1.3493 might act as support in the USD/CAD currency pair 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 start of last Wednesday’s New York session (which can often be a great time to enter Forex trades in major USD currency pairs such as this one) with a large bullish engulfing candlestick, marked by the up arrow signaling the timing of this bullish rejection. This trade has been extremely profitable, achieving a maximum positive reward to risk ratio of more than 2 to 1 so far based upon the size of the entry candlestick structure.
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