This is the first of what we hope will be a series of articles designed not only to highlight potential trade set-ups for you to watch out for, but also to enhance your learning with some real-time market analysis.
This week we’ll begin with our monthly and weekly forecasts of the currency pairs worth watching. The first part of our forecast is based upon our research of the past 11 years of Forex prices, which show that the following methodologies have all produced profitable results:
Trading the two currencies that are trending the most strongly over the past 3 months.
Assuming that trends are usually ready to reverse after 12 months.
Trading against very strong counter-trend movements by currency pairs made during the previous week.
Buying currencies with high interest rates and selling currencies with low interest rates.
Let’s take a look at the relevant data of currency price changes and interest rates to date, which we compiled using a trade-weighted index of the major global currencies:
Monthly Forecast October 2015
This month we forecast that the most probable movement is short AUD/JPY. The performance so far has not been great and is shown below:
Currency Pair | Forecast Direction | Interest Rate Differential | Performance to Date |
AUD/JPY | Short ↓ | -1.90% (0.10% - 2.00%) | -3.15% |
Weekly Forecast 18th October 2015
This week, we make no forecast, as there are no strong counter-trend movements.
Last week saw continuing great strength in the NZD, and also strength in the CHF, GBP and JPY. The weakest currency over the week was the AUD.
Volatility was lower than the previous week. Only 25% of the major and minor currency pairs changed in value by more than 1%. Volatility is likely to be higher this this week as there are central bank events scheduled for the EUR, CAD and the AUD.
Key Support/Resistance Levels for Popular Pairs
At the FX Academy, we teach that trades should be entered and exited at or very close to key support and resistance levels. There are certain key support and resistance levels that should be watched on the more popular currency pairs this week, which might result in either reversals or breakouts:
Currency Pair | Key Support / Resistance Levels |
AUD/USD | Support: 0.7200, 0.7166, 0.7143 Resistance: 0.7442, 0.7476, 0.7552, 0.7600 |
EUR/USD | Support: 1.1315, 1.1232, 1.1105 Resistance: 1.1559 - 75 |
GBP/USD | Support: 1.5244, 1.5078, 1.4971 Resistance: 1.5381, 1.5485, 1.5665 |
USD/JPY | Support: 118.00, 116.82 Resistance: 121.80, 123.00, 123.77 |
AUD/JPY | Support: 85.93, 85.50, 85.00, 82.96 Resistance: 89.13 – 89.33 |
EUR/JPY | Support: 134.39, 133.30 Resistance: 136.89, 137.56 |
USD/CAD | Support: 1.2800, 1.2591, 1.2511 Resistance: 1.2971, 1.3064, 1.3128, 1.3202 |
USD/CHF | Support: 0.9384 Resistance: 0.9549, 0.9648, 0.9900 |
Let’s see how trading two of these key pairs last week off key support and resistance levels could have worked out:
GBP/USD
We had expected the level at 1.5485 might act as resistance, as it had acted previously as both support and resistance. Note how these “flipping” levels can work really well. The H1 chart below shows how the price kept trying to break up above the level but took a long time getting ready to fall. It was quite a difficult trade, although if you had managed to avoid getting stopped out, you could be in profit by about 40 pips.
AUD/JPY
We had expected the level at 86.88 might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work really well. The H1 chart below shows how just after the open of Tuesday’s New York session the price bounced off this support level, and reversed forming a pin candle, marked at (1). Unfortunately the price immediately resumed falling, and this was a losing trade.
You can trade our forecasts in a real or demo Forex brokerage account to test the strategies and strengthen your self-confidence before investing real funds.
Adam Lemon
Chief Instructor
FX Academy