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 weakening of the USD across the board and serious strength in the EUR and GBP, as well as the CHF. The market is starting to show a trend against the USD. Significantly, the quantitative analysis is showing the USD as most likely to weaken against all the other four currencies now. Technically, for the first time it looks completely opposite, as in each of the four pairs the USD is approaching serious support that looks technically likely to give some kind of bounce, even if it is not very large.
Summary
The quantitative and technical forecasts differ on the JPY and CHF.
Next week, we will review how these forecasts performed.
Previous Forecasts
These forecasts have been running for 22 weeks.
Last week, the technical and quantitative forecasts both produced positive results overall, with the technical forecast showing a rare outperformance. The USD weakened everywhere. The results were as follows:
The running totals of the forecasts after 22 weeks so far are as follows:
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 performed slightly positively, but the Quantitative forecast has performed somewhat better.
However, it is worth noting that after 22 weeks, there is not a great deal of difference in the results. This shows how similar trading strategies do tend to even out over time.