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 8th January 2017
Last week, I predicted that the best trades for this week were likely to be long USD against the British Pound and the Australian Dollar. The GBP/USD trade was a winner but the AUD/USD trade was a loser, averaging a small loss of -0.44%. The USD fell in strength last week, against the long-term bull trend in the greenback, across the board.
The Forex market seems to be staying in a more predictable mode now, with a well-established bullish trend in the USD since 8th November.
I therefore suggest that the best trade this week is again likely to be long USD against the British Pound, and against the Japanese Yen.
Fundamental Analysis & Market Sentiment
Fundamental factors are playing a role right now most notably on the USD. Four weeks ago, the FOMC raised the base rate by 0.25%, and the market was expecting that, but the surprise which made the market more bullish on the USD was the upward revision of projections for further tightening through more rate hikes during 2017 and beyond. The Non-Farm Payrolls data was disappointing, but the market shrugged it off, which is a bullish sign for the USD.
There are not really any other fundamental or sentimental factors to pick out right now.
The U.S. Dollar made another new 14 year high, but printed a bearish candle within the scope of a wider bullish trend that is manifested over both the long and short terms. The bearish candle is an outside doji candle, but I don’t feel very bearish about it yet as it is large. It may still be a normal pull back within the trend, but what happens over the next week will be very key to the weekly candlestick analysis here.
An outside doji candle which is significant for its indecision. Note that the price is now approaching a historical multi-year low area but running out of bearish momentum. A note of caution – there may be strong support at the low, but the fact that the price is falling quite strongly on shorter time frames suggests a further drop.
A very indecisive week with a large outside doji weakly bearish candle. If this is suggestive of anything, it is further consolidation, but the strength and distance of the bullish move in recent weeks strongly suggests still higher prices.
Bullish on the U.S. Dollar, bearish on the British Pound and Japanese Yen.