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 February 2023
For the month of January, I forecasted that the EUR/USD currency pair would rise in value and that the USD/JPY currency pair would fall in value.
The forecast performance was as follows:
For the month of February, I forecast that the EUR/USD currency pair will rise in value.
Weekly Forecast 5th February 2023
Last week, I made no weekly forecast. This week, I forecast that the GBP/CAD currency cross will rise in value, as it made an unusually strong counter-trend price movement last week.
Directional volatility in the Forex market is likely to remain the same or decrease over the coming week.
Last week was dominated by relative strength in the US Dollar, and relative weakness in the British Pound.
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 two of these key pairs last week off key support and resistance levels could have worked out:
USD/CHF
I had expected the level at $0.9288 might act as resistance in the USD/CHF 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 shortly after the start of last Tuesday’s London session with double inside candlesticks, marked by the down arrow in the price chart below signaling the timing of this bearish rejection. This trade has been profitable, achieving a maximum positive reward to risk ratio of more than 8 to 1 so far based upon the size of the entry candlestick structure.
EUR/JPY
I had expected the level at ¥139.96 might act as support in the EUR/JPY currency cross, 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 during Friday’s Asian session with an inside bar, marked by the up arrow in the price chart below signaling the timing of this bullish rejection. This trade has been very profitable, achieving a maximum positive reward to risk ratio of more than 10 to 1 so far based upon the size of the entry candlestick structure.
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