Quantitative Forecast
Academic studies have shown that the most reliable way to determine future price movements from past price movements, is by use of momentum.
In the Forex market, a momentum study is best applied to the four major Forex currency pairs by simply checking whether the weekly close is above or below the weekly close 13 weeks ago.
If the price is higher, the statistical edge is in trading that pair long.
If the price is lower, the statistical edge is in trading that pair short.
On this basis, the quantitative momentum forecast for the edge during the coming week is as follows:
Technical Forecast
The question as to whether an experienced chart-reading technical analyst can outperform a simple momentum model warrants a live experiment. Looking at the weekly charts for each of the four major pairs, I will try to determine the line of least resistance, and forecast the directional edge using my own technical analysis.
On this basis, my technical analysis forecast for the edge during the coming week is as follows:
Last week saw a continuation of the pull back against the long-term bullish USD trend, although this was reversed to some extent on Friday, especially against the JPY. The GBP is also beginning to strengthen and show signs of a bullish reversal, even against the USD. The CHF pull back is slowing down dramatically and looks set to reverse. For these reasons, my technical forecast agrees with the quantitative forecast, with the exception of GBP/USD which technically I think will close this week up.
Summary
The quantitative and technical forecasts agree that the USD will strengthen against the EUR, JPY and CHF, but technically I see the GBP as likely to strengthen against the USD next week.
Next week, we will review how these forecasts performed.
Previous Forecasts
These forecasts have been running for 8 weeks.
Last week, both the technical and quantitative forecasts were wrong about everything, except the Technical forecast did correctly predict that the JPY would rise against the USD.
The running totals of the forecasts after 7 weeks so far are as follows:
Both forecasts have performed negatively to date, due to the very sharp and historically unprecedented counter-trend moves in the CHF over the previous month. If not for this move, the Quantitative forecast would be performing quite well, and the Technical forecast would also be profitable.