The difference between success and failure in Forex trading is very likely to depend upon which currency pairs you choose to trade each week, and not on the exact trading methods you might use to determine trade entries and exits. Each week I am going to analyze fundamentals, sentiment and technical positions in order to determine which currency pairs are most likely to produce the easiest and most profitable trading opportunities over the next week. In some cases it will be trading the trend. In other cases it will be trading support and resistance levels during more ranging markets.
Big Picture 27th March 2016
Last week I highlighted long AUD/USD as a good trade for this week, although I qualified that by suggesting that prices below 0.7400 would give the best value. The pair actually fell in value by 1.25% but never reached 0.7400. I also highlighted a possible short set-up on the USD/JPY as something that would be worth watching out for. There were no opportunities here as the pair just kept rising.
Fundamental Analysis & Market Sentiment
Fundamental analysis is not very useful in Forex markets at the moment. Sentiment is a much stronger price driver right now.
The feature that really stands out this week is the strength of the U.S. Dollar. This currency is usually the key to the Forex market, and when it is the big mover, it tends to make the market really jump. The market is growing increasingly convinced that the Federal Reserve is more likely to continue with the next rate rise in April than wait until later in the year. This has seen the U.S. dollar strengthen this week against the longer-term trend.
Opinion polls are still showing that a British vote to exit the European Union is a definite possibility to happen in the referendum due next June, and there was also some poor fundamental economic data, so this has sent the pound downwards.
Technical Analysis
USDX
The U.S. Dollar Index moved up quite strongly last week after reaching a significant multi-month support area, closing at a price between prices from both three months and six months ago. This suggests that the best trend trades are likely to be against the U.S. Dollar in the near future, but that we have not had a real bearish breakout yet.
AUD/USD
This pair broke out bullishly quite strongly four weeks ago, but had its first serious down week in the last nine weeks. However this movement was mainly due to U.S. Dollar strength and not Australian Dollar weakness.
It makes good sense to continue looking for long trades here, especially following any pullbacks to 0.7400 or below
USD/JPY
This pair rose all week, but the Yen could easily strengthen again back into line with the long-term trend. There are likely to be further opportunities for good short trades at 113.75 where the trend lines are currently sitting, or above there.
GBP/USD
The British Pound is weak and the U.S. Dollar has been strong. If the dollar strength continues, the Pound is probably the safest currency to be short of against it. Pullbacks to prices at 1.4200 or above could be good value for new short trades but watch out for the support at around 1.4050.
The safest trades of the week are probably going to be long AUD/USD if the environment turns decisively risk-on, or short GBP/USD if decisively risk-off.
