Forex Forecast: Pairs in Focus

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 February 2018

In my previous piece last week, I was bullish on Gold and the British Pound, and bearish on the U.S. Dollar. The GBP/USD currency pair fell by 0.93% while Gold/USD rose by 1.14%, producing an averaged win of 0.10%.

Last week saw the strongest rises in the relative value of the Australian Dollar and Gold, and the strongest fall in the relative value of the British Pound.

Last week’s Forex market was quieter, dominated by a bullish trend in precious metals, and a continuing rise in stocks and crude oil. The British Parliament’s rejection of resolutions designed to rule out a “no deal” Brexit caused the Pound to fall.

This week is likely to be dominated by the British Pound as it is the only major currency with central bank input scheduled over the coming week, except the Australian Dollar. There is also continuing political speculation over whether Brexit will happen as scheduled on 29th March, and the detailed economic terms of the departure.

Fundamental Analysis & Market Sentiment

Fundamental analysis remains unclear on the U.S. Dollar. The stock market has continued to recover from its lows but remains a bear market technically. There are major fears over the seeming high sensitivity of the economy to any further rate hikes, as evidenced by the fact that the FOMC appears to have given up on its originally planned further rate hikes for 2019. The ongoing trade dispute with China appears to be moving towards a positive resolution, which is a good sign. A temporary resolution of the U.S. Government shutdown which will reopen the government until 15th February has been agreed which may be helping the U.S. stock market continue its recovery this month.

Public sentiment in the U.K. appears to be hardening on Brexit and attempts by Parliamentary rebels to overturn Brexit appear to be failing. Simultaneously, increasing concern is being voiced within the E.U. over the consequences that countries such as France, Germany, Ireland and Holland will face in the event of a “no deal” Brexit.

The ECB has recently taken a more dovish line on the Euro.

The Bank of Japan has trimmed its forecasts on growth and inflation which suggests a weaker Yen.

Precious metals, especially Gold, still look strong.

Technical Analysis

U.S. Dollar Index

The weekly price chart below shows that last week the USD Index fell again, printing a bearish doji candlestick with a low which was very close to the support level identified at 12085. The price is down over 3 months, and barely up over 6 months, so we have a more clearly bearish picture on the Dollar. However, the support level below at 12085 may have given support and the doji candlestick suggests uncertainty.

USDX

GBP/USD

The weekly chart below shows last week produced a bearish inside candlestick, but the price is above its levels from 3 months and 6 months ago which suggests there is still a long-term bullish trend. If the support level at 1.3058 holds and any progress emerges in Brexit negotiations, we may see a rise here over the coming week.

GBPUSD

GOLD/USD

The weekly chart below shows last week produced a slightly large bullish candlestick which closed within the top half of its range following the strong bullish movement seen over the past several weeks. The price has made its highest weekly close since May and is now above its levels from both three and six months ago. These are bullish signs and the price does look reasonably likely to rise further, especially as we have seen a bullish breakout above $1310 which was clear and strong resistance. However, there is resistance not far above at $1332.93.

GOLD

Conclusion

I take no clear bias over the week, but it was be worthwhile to watch for long Gold and GBP/USD trades on shorter time frames over the coming days.

 

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. Learn more from Adam in his free lessons at FX Academy.