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 10th April 2016
Last week I highlighted long AUD/USD and short GBP/USD as the best possible trade for this week. Unfortunately, the pair fell by 1.64% during the week, and this was caused by the Reserve Bank of Australia signaling that they do not want the currency to rise any further, backed by the threat of further rate cuts.
This week I see short USD and long JPY, CHF and EUR as the best possible trades. The USD/JPY has been very strong and is quite advanced, but it is usually a mistake to assume a trend has run its course just because it is advanced.
Fundamental Analysis & Market Sentiment
Fundamental analysis is becoming less useful in Forex markets at the moment.
The feature that really stands out this week is the strength of the Japanese Yen, and this is seen as contrary to both fundamentals and even the desire of the Bank of Japan and the Japanese Government.
The weakness of the U.S. Dollar is also not really supported by economic data, but is rather a product of sentiment that the Federal Reserve is going to take a more cautious approach regarding any forthcoming rate rises.
The driving forces are really sentiment and risk-off flows to the Japanese Yen and Euro.
Technical Analysis
USDX
The U.S. Dollar Index fell again last week, closing at a price lower than the prices from both three months and six months ago, suggesting the greenback is in a downwards trend. This suggests that the best trend trades are likely to be against the U.S. Dollar in the near future. However the Index still really needs to break below recent support from about 11800 to 11600 before the fall would start to look very strong.
USD/JPY
This pair fell very strongly this past week, by more than 3% and without even a really meaningful pullback. The price has made new 18 month lows. The trend looks very strong but it is worth noting that we are returning to an area close to where the price based before the acceleration of 2014.
USD/CHF
This pair is getting established below its prices from 3 months and 6 months ago and the weekly candlesticks shown below are suggestive of a forthcoming strong fall. The major obstacle to that looks to be potential support at the key psychological round number of 0.9500 which is not far away from last week’s close.
EUR/USD
The weekly chart below shows we have just had the highest weekly close since last June, with a solid bullish long-term base being formed. However it can also be seen that we are in a price area that has acted as a cap for a long time now. I believe that it is likely that the price will fall to at least 1.1300 before rising significantly again, so this is definitely the pair to be most cautious of from the three highlighted here.
The safest trades of the week are probably going to be short USD/JPY and USD/CHF.