Trading Support and Resistance - 12 March 2017

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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:

* Trading the two currencies that are trending the most strongly over the past 3 months.

* Assuming that trends are usually ready to reverse after 12 months.

* Trading against very strong counter-trend movements by currency pairs made during the previous week.

* Buying currencies with high interest rates and selling currencies with low interest rates.

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:

Table 01

Monthly Forecast March 2016

This month we forecasted that the highest-probability trades will be long USD/CAD and short NZD/USD. The performance so far is as follows:Table 02

 

Weekly Forecast 12th March 2017

Last week, we made no forecast, as there were no strong counter-trend movements.

This week, we again make no forecast, as although there is a strong counter-trend movement in the EUR/NZD, we see the NZD as too weak to become long of.

This week has been dominated by relative strength in the Euro, and relative weakness in the New Zealand Dollar and the British Pound.

Volatility was lower than last week, with only 37% of the major and minor currency pairs changing in value by more than 1%. Volatility is likely to be much higher over this coming week. 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:Table 12

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

AUD/JPY

We had expected the level at 85.89 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 level close to the London session last Thursday. Entry was signaled by the bullish pin candle which formed immediately after the price was hit, marked by the up arrow within the chart below. This long trade has given an excellent maximum reward to risk ratio of more than 3 to 1 to date, if the stop had been placed just below the swing low at the entry candlestick.

AUDJPY

EUR/USD

We had expected the level at 1.0525 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 level close to the London open last Thursday, which can be a very significant time of day for USD-based and EUR-based currency pairs such as this one. Entry was signaled by the bullish doji candle which formed immediately after the price was hit, marked by the up arrow within the chart below. This long trade has given an excellent maximum reward to risk ratio of more than 4 to 1 to date, if the stop had been placed just below the swing low at the entry candlestick.

EURUSD

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 Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.