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 4th June 2017
Last week, I predicted that the best trade for this week was likely to be long the Euro and Gold, and short of the U.S. Dollar. This worked out very well, with both pairs rising. This combination trade was nicely profitable, with EUR/USD rising by 0.91%, and Gold also rising, by 0.98%. This produced an average profit of 0.95%.
The Forex market is in a more settled mood, with trends in force against the U.S. Dollar and in favor of the Euro, Gold, and the Swiss Franc, and these trends have resumed their long-term direction this week. I correctly forecasted that Friday would be crucial to last week’s final direction. The market will now be focusing on the U.S. Dollar and safe havens following last Friday’s disappointing Non-Farm Payrolls headline number, and there will almost certainly be volatility in the British Pound following a further terrorist attack in the U.K. over the weekend and the British General election on Thursday. I therefore suggest that the best trades of the coming week will again be long the Euro and Gold, as well as the S&P 500 Index, and short of the U.S. Dollar.
Fundamental Analysis & Market Sentiment
The major elements affecting market sentiment at present are increasingly positive economic data within the Eurozone concerning growth and unemployment, and renewed concerns over the Federal Reserve’s ability to continue to tighten monetary policy any time soon, as well as fears over terrorism in the western world. There is nothing scheduled which looks likely to change this picture in the next few days, so currency conditions will probably continue into the new week.
Technical Analysis
USDX
The U.S. Dollar printed a strongly bearish candle this week. It is a bearish engulfing candle of normal size closing right on its low. The rhythm of the pattern is bearish and the candle continued that. The bullish trend line is broken and has been rejected bearishly from the broken side, with a new resistance level forming at 12289. The price has broken convincingly below the formerly supportive level at 12203. The price is now below its historic levels from 3 months and 6 months, so has a long-term bearish trend. The signs remain bearish.
EUR/USD
The EUR/USD currency pair printed a strongly bullish candle this week. It is a large-sized bullish outside candle closing right on its high. The monthly close at the end of May was the highest close in over 1 year. The rhythm of the pattern is very bullish and the candle continued that. The only reason for bulls to be cautious is that the price is now approaching the upper edge of a range which has held for more than 2 years. The price is well above its historic levels from 3 months and 6 months, so has a long-term bullish trend. The signs remain bullish, with the Euro the most relatively strong of all major global currencies.
GOLD
The weekly chart below shows that this pair had another bullish week. The candle that formed this week is a normal sized bullish candle, closing right on its high. The price is above its levels of both 3 months and 6 months, so it remains in a long-term bullish trend. The rhythm of the past few months has been solidly if quietly bullish, with a clear series of higher lows supported by the bullish trend line shown in the chart below. There is a reason for bulls to be cautious: there is a long-term bearish trend line not far above which may continue to hold, and the bullish momentum is not extremely strong. However, if the price can break up above that trend line, it would be more likely to increase its bullish momentum.
S&P 500 Index
When the U.S. stock market is making new all-time highs, and printing a steady succession of bullish candles, you do not need to ask many questions to be a convinced bull. The only question truly worth asking is, by how much can a very mature bull market in stocks fall by in a single day, before my stop losses might get honored? The all-time record drop, in 1987, was by over 20% in value, which is a good illustration as to why trading stock market indices with leverage can be very dangerous to your account.
Conclusion
Bullish on the Euro and Gold and the S&P 500 Index; bearish on the U.S. Dollar.