This week I will begin with my monthly and weekly Forex forecast of the currency pairs worth watching. The first part of my forecast is based upon my research of the past 20 years of Forex prices, which show that the following methodologies have all produced profitable results:
- Trading the two currencies that are trending the most strongly over the past 6 months.
- Trading against very strong weekly counter-trend movements by currency pairs made during the previous week.
- Carry Trade: Buying currencies with high interest rates and selling currencies with low interest rates.
Let us look at the relevant data of currency price changes and interest rates to date, which we compiled using a trade-weighted index of the major global currencies:
Monthly Forecast October 2022
For the month of October, I forecast that the USD/JPY currency pair will increase in value.
For the month of September, I forecasted that the EUR/USD currency pair and the GBP/USD currency pair would decline in value, while the USD/JPY currency pair would increase in value. The positive result is shown below:
Weekly Forecast 2nd October 2022
Last week, I forecasted that the CAD/JPY currency cross was likely to increase in value. This was not a good call, as this cross increased over the week by 0.89%. Last week we saw a strong counter trend move in the GBP/USD currency pair, so I forecast that is will decrease in value over the coming week.
The Forex market saw an increase in directional volatility last week, with 77% of all the important currency pairs or crosses moving by more than 1% in value. Directional volatility is likely to remain high over this coming week as there are several major central bank releases due.
Last week was dominated by relative strength in the British Pound, and relative weakness in the Australian, New Zealand, and Canadian Dollars, and the Swiss Franc.
You can trade my forecasts in a real or demo Forex brokerage account.
Key Support/Resistance Levels for Popular Pairs
I teach that trades should be entered and exited at or very close to key support and resistance levels. There are certain key support and resistance levels that can be watched on the more popular currency pairs this week.
Let us see how trading one of these key pairs last week off key support and resistance levels could have worked out:
USD/CHF
We had expected the level at 0.9738 might act as support in the USD/CHF currency pair last week, as it had acted previously as both support and resistance. Note how these “role reversal” levels can work well. The H1 price chart below shows how the price rejected this level towards the end of last Thursday’s New York session with a bullish hammer candlestick, marked by the up arrow signaling the timing of the bullish rejection. This trade has been extremely profitable, achieving a maximum positive reward to risk ratio of more than 4 to 1 based upon the size of the entry candlestick.
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