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 3rd December 2017
Last week, I saw the best possible trades for the coming week as long of the S&P 500 Index, long of Crude Oil in U.S. Dollar terms, and long of GBP/USD. The individual results were mixed, but the overall result was positive, as the S&P 500 Index rose by 1.58%, the GBP/USD currency pair rose by 1.00%, and Crude Oil fell by 1.14%, producing an average gain of 0.48%.
The Forex market over the past week has continued its bearish turn on the U.S. Dollar, although it looks as if this movement might now be running out of momentum. It is hard to say what will happen next, as there are major political developments. Firstly the U.S. Congress has passed some kind of tax reform bill, and major tax cuts now seem set to happen. This is boosting the stock market and should boost the U.S. Dollar also. However, President Trump’s former National Security advisor has pleaded guilty to deceiving the FBI, and this might turn into a major problem for the President’s administration. As time goes by, that is looking less likely though, so the Dollar could be set for a recovery.
The news agenda this week is almost certainly going to be dominated by the ongoing political developments in the U.S.A. and the crucial Non-Farm Payrolls data due at the end of the week.
The American stock market is in a strong long-term bullish trend, and it made a new all-time high price on Friday. The three major Forex pairs are all in long-term trends, and as I think the U.S. Dollar will probably advance this week, I select the only one in favor of the greenback: long USD/JPY.
Following the current picture, I see the highest probability trades this week as long of the S&P 500 Index, and long of USD/JPY.
Fundamental Analysis & Market Sentiment
The market is largely bullish and “risk-on”, with the stock market looking particularly strong, while nothing looks particularly weak at present.
Technical Analysis
U.S. Dollar Index
This index printed a relatively small doji candlestick, signifying indecision. There is no long-term trend, so technically it seems the greenback is looking very difficult to predict this week.
S&P 500 Index
This pair is a strong long-term upwards trend, and just made a new all-time high price on Thursday, which means it will probably continue to rise further. Buying stocks at all-time highs of the major index is usually a good strategy, even though the financial media is full of warnings as to how stocks are about to crash. These warnings have been coming for months; those who ignored them and bought have been rewarded. The market will probably crash eventually but meanwhile, there is money to be made on the long side. The fact that the week closed near its high is a bullish sign.
USD/JPY
This pair is a very slow and long-term upwards trend, and I am only interested in the pair this week as fundamental factors look to be in its favor, and as it is just starting to turn upwards. It is a risky trade and the fact that last week’s candlestick, while bullish, has a long upper wick is worrying.
Conclusion
Bullish on the S&P 500 Index, and the USD/JPY currency pair.