Trading Support and Resistance - 6 December 2015

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:

Table 01

Monthly Forecast December 2015

This month we forecast that the most probable movements are short GBP/USD and EUR/USD and long USD/CHF. The forecast has performed negatively so far, as shown below:


Table 02

 

Weekly Forecast 6th December 2015 

Last week, we made no forecast.

This week, we note the very strong counter-trend movements made in CHF/JPY and EUR/JPY. We think both of these crosses are likely to fall in value over the coming week.

This week saw strength in the EUR, CHF, AUD and NZD, and relative weakness in the USD and JPY. We think the big question is whether the EUR and CHF will hold up or fall back to their respective former values quite rapidly.

Volatility was quite high, certainly much higher than the previous week. Approximately 56% of the major and minor currency pairs changed in value by more than 1%. Volatility is likely to be around the same this week.

You can trade our forecasts in a real or demo Forex brokerage account.

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:

Table 12

 

Let’s see how trading two of these key pairs last week off key support and resistance levels could have worked out:

EUR/USD

We had expected the level at 1.0550 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 last Wednesday the price fell to and rejected this level almost to the pip, before really turning around on the ECB surprise with a very large bullish outside candle. Although this candle was already a very large move, it went on to produce large additional gains.

EURUSD

AUD/JPY

We had expected the zone at 89.13 to 89.33 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 last Monday the price rose to and rejected this zone with a fast bearish candle. Unfortunately the trade did not give enough profit to equal the risk.

AUDJPY

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

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.