Forex Forecast – Quant vs Chart Reading - 19 April 2015

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:

Chart 1 41915

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:

Chart 2 41915

 

Last week saw the USD weaken with some technical significance, which is why my technical forecast differs completely from the quantitative forecast. Although the quantitative analysis is showing the USD as stronger than all of its major paired currencies, this is not the case with the USD against the CAD and the NZD. This is a potentially significant development.

Summary

The quantitative and forecast see the USD as strengthening against all its major pairs. The technical forecast, conversely, sees a weakening.

Next week, we will review how these forecasts performed.

Previous Forecasts

These forecasts have been running for 18 weeks.

Last week, the technical and quantitative forecasts both produced negative results overall. The USD weakened across the board. The results were as follows:

Chart 3 41915

 

The running totals of the forecasts after 18 weeks so far are as follows:

Chart 4 41915

Both forecasts have performed negatively to date, due solely to the very sharp and historically unprecedented counter-trend moves in the CHF over recent months. Excluding the USD/CHF pair, both have been performing positively, but the Quantitative forecast has performed much better.

Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.