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. Last week it had looked like the strong USD trend was re-emerging. However that seems to be in doubt now, even against the JPY which had been one of the weakest currencies. The picture is mixed now and it may be that we are entering an unclear period where there is no overwhelming strong trend in the market.
Summary
The quantitative and technical forecasts agree with the exception of USD/JPY. The technical forecast sees the USD falling across the board next week.
Next week, we will review how these forecasts performed.
Previous Forecasts
These forecasts have been running for 26 weeks.
Last week, the quantitative and technical forecasts were completely different with the exception that both forecasted a long USD/JPY move. The quantitative forecast performed slightly positively, the technical forecast quite negatively. The results were as follows:
The running totals of the forecasts after 26 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 positively, but the technical forecast has performed somewhat better.
This might suggest that trading strategies can perform best when they are guided mathematically but subjected to a human element which can act to overrule it when it “feels” wrong. So far, the human is beating the machine!