Forex Forecast: Pairs in Focus

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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 25th August 2019

This worked out fine, but the result was nothing special. The EUR/USD currency pair rose by 0.43% while the NZD/USD currency pair fell by 0.48%. These trades add up to a very small averaged win for the week of 0.03%.

Last week’s Forex market saw the strongest rise in the relative value of the British Pound, and the strongest fall in the relative value of the Australian Dollar.

Last week’s market was dominated by Friday’s ordering of additional tariffs on Chinese important by President Trump, which sent stock markets down and boosted flow into safe-haven assets such as precious metals, the Japanese Yen, and the Euro.

The Forex market was relatively quiet last week, with very few trends persisting.

This week has a similar amount of high impact news releases due compared to last week, but the preliminary U.S. GDP data due will be an important and closely watched item.

Fundamental Analysis & Market Sentiment

Fundamental analysis now sees the Federal Reserve as taking a balanced approach following the recent rate cut – however, another cut of 0.25% is widely expected later this year, with Goldman Sachs giving an 80% probability to this scenario. The U.S. economy is still growing quite strongly, but the new tariffs on Chinese goods have caused stock markets to fall strongly and the Dollar to give up most of its earlier gains, with a general flight to safety again taking place.

The British Pound has been boosted by a greater expectation that some type of deal will be agreed between the E.U. and the U.K. over Brexit, plus stronger than anticipated British inflation data.

The risk-off sentiment in the market has come back, with money flowing into safe-havens such as precious metals, the Japanese Yen, and the Euro, and out of the commodity currencies, especially the New Zealand Dollar.

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Technical Analysis

U.S. Dollar Index

The weekly price chart below shows that last week the USD Index fell, printing a normal-sized bearish outside candlestick which closed right on its low. These are bearish signs. However, the price is up over both 3 months and over 6 months, indicating a bullish trend. It is not clear that the nearby support has been broken. Overall, we are getting mixed signals on the greenback, which suggests that the Forex market may be driven by currencies other than the Dollar over the coming week at least.

usdx

USD/JPY

This currency pair printed a strongly bearish engulfing inside candlestick last week, which closed near its low, at the lowest weekly closing price for almost 18 months. These are all bearish signs. Stock markets are selling off since Friday and there is quite a strong flow into safety. However, bears should be cautious of the fact that the big round number at 105.00 could be supportive.

usdjpy

XAU/USD

Gold in U.S. Dollar terms made its highest weekly close in more than six years, printing a bullish inside candlestick which closed right on its high, above the former resistance level at $1522. These are all bullish signs, although the previous week’s high price has yet to be touched. There is a flow into safe-havens and Gold has benefitted from this, with precious metals generally looking like advancing further.

xaudusd

XAG/USD

Silver in U.S. Dollar terms made its highest weekly close in more than 18 months, printing a bullish inside candlestick which closed quite near n its high, above the former resistance level at $17.23. These are all bullish signs, although the previous week’s high price has yet to be touched, confluent with the psychological level at $17.50 which may prove to act as strong resistance. There is a flow into safe-havens and Silver has benefitted from this, with precious metals generally looking like advancing further. However, bulls would be wise to be at least a little cautious of $17.50.

xagusd

Conclusion

This week I forecast the best trades will be Long of XAG/USD following a daily close above $17.50, long of XAU/USD, and short of USD/JPY following a daily close below 105.00.

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.