Trading Support and Resistance - 26 December 2016

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By: DailyForex.com

This week we’ll begin with our monthly and weekly forecasts of the currency pairs worth watching. The first part of our forecast is based upon our research of the past 11 years of Forex prices, which show that the following methodologies have all produced profitable results:

Let’s take a 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:

Chart 1

Monthly Forecast December 2016

This month we forecasted that the highest-probability trade will be long USD/JPY. So far, this trade has performed very positively, as shown in the table below:

chart 2

Weekly Forecast 26th December 2016

Last week ago, we made no forecast.

This week, we forecast that the AUD/JPY currency cross will rise in value, as it had a strong counter-trend movement last week.

This week has been dominated by relative strength in the Japanese Yen, and relative weakness in the Australian and Canadian Dollars. It is the weakness of the Dollars that stands out most strongly.

Volatility was considerably higher than it was last week, with 59% of the major and minor currency pairs changing in value by more than 1%. Volatility will probably be must lower over this coming week, as there is a very light news schedule, including a holiday season in many financial centers.

You can trade our forecasts in a real or demo Forex brokerage account.

Key Support/Resistance Levels for Popular Pairs

We 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 should be watched on the more popular currency pairs this week, which might result in either reversals or breakouts:

chart 3

Let’s see how trading one of these key pairs last week off key support and resistance levels could have worked out:

AUD/JPY

We had expected the level at 84.66 might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work well. The H1 chart below shows the how the price hit this during the New York session last Monday. Entry was signaled by the bullish inside candle which formed immediately after the price was hit, marked by the up arrow within the chart below. This long trade gave a maximum reward to risk ratio of a about 5 to 1, if the stop had been placed just below the swing low at the entry candlestick. Note how the failure at the swing high indicated the best exit for this trade, and how the good reward to risk was achieved more through the tightness of the entry rather than the length of the price excursion.

AUDJPY

You can trade our forecasts in a real or demo Forex brokerage account to test the strategies and strengthen your self-confidence before investing real funds.

Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch. He is certified in Fund Management and Investment Management by the U.K. Chartered Institute for Securities & Investment.