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 29th May 2016
Last week I did not formally predict any pair as the best possible trade for the week. This was because sentiment was going against all the long-term trends. However I did say that the best odds would be in short AUD/USD and long USD/CHF, and both of these pairs did move in those directions.
This week is again a difficult prediction as nothing has really changed. However looking at a weekly chart it can be said that the best trends of the USD pairs are probably long GBP/USD and short AUD/USD.
Fundamental Analysis & Market Sentiment
Fundamental analysis is becoming less useful in Forex markets at the moment. Sentiment has been much more of a driver.
The British Pound has been the strongest currency this week. This is probably mostly due to follow-through from a new opinion poll being released showing a large lead for the “Remain” vote in the British referendum on European Union membership due next week.
The Australian Dollar remains weak following the input of recent weeks from the RBA suggesting further rate cuts are increasingly likely in the near future.
The U.S. Dollar is slightly bullish as the market is more expectant of a rate hike in June. We will soon know if this becomes a reality or not.
Technical Analysis
USDX
The U.S. Dollar Index rose again last week, printing a slightly bullish candle as part of a continued movement rejecting into a key support zone between 11800 and 11600. However, it again closed at a price lower than the prices from both three months and six months ago, indicating the greenback remains in a downwards trend. Nevertheless the chart suggests some continuing short-term strength in the U.S. Dollar.
AUD/USD
Looking at the major pairs, probably the best one for exploiting any continuation of U.S. Dollar strength would be the AUD/USD pair. This is mainly just due to the momentum of the fall of recent weeks, as well as the bearish sentiment on the AUD.
GBP/USD
Looking at the major pairs, probably the best one for exploiting any renewed weakness in U.S. Dollar strength would be the GBP/USD pair. The price got close to its 2016 high last week. The chart below shows what really looks like the beginning of a bullish trend, although there is still a major bearish trend line above that must be cleared.
Conclusion
The market is awaiting crucial news on the USD. Therefore it is quite probable that over the coming week other currencies such as the GBP and AUD will be key drivers, at least until Friday when Non-Farm Payroll data may dominate and strongly affect market sentiment.