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 resumption in USD strength towards the end of the week, and continuing strength in the GBP. The EUR also remains the weakest currency overall. I see these moves as more likely than not to continue although possibly not with much strength. The only exception is the USD/CHF pair which seems to be finding it hard to break strongly above 0.9500.
Summary
The quantitative and technical forecasts agree that the USD will strengthen against all four paired currencies.
Next week, we will review how these forecasts performed.
Previous Forecasts
These forecasts have been running for 11 weeks.
Last week, the technical and quantitative forecasts were identical. They were mildly successful overall, correctly predicting the moves in EUR/USD and USD/JPY only:
The running totals of the forecasts after 11 weeks so far are as follows:
Both forecasts have performed negatively to date, due primarily to the very sharp and historically unprecedented counter-trend moves in the CHF over the previous few weeks. Excluding the USD/CHF pair, both have been performing positively.