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 11th August 2019
In my previous piece last week, I forecasted that the best trades would be short of GBP/JPY and AUD/JPY. XAU/USD (Gold in USD terms) long could also be good following a daily close above $1450.
This went very well and was a great forecast. The GBP/JPY currency cross fell by 1.99% while the AUD/JPY cross fell by 1.06%. Gold in USD terms closed above $1450 on Monday and then rose by 2.24% over the week. These trades add up to a very positive averaged win for the week of 1.76%.
Last week’s Forex market saw the strongest rise in the relative value of the Euro, and the strongest fall in the relative value of the British Pound.
Last week’s market was dominated by the release of poorer than expected British economic data, and a bigger than expected rate cut by the Reserve Bank of New Zealand.
The Forex market continued to be strongly active last week, with strong directional movement and a few trends.
This week has a slightly thinner news agenda scheduled compared to last week, but there are some important items due concerning the British Pound, and the Australian and U.S. Dollars.
Fundamental Analysis & Market Sentiment
Fundamental analysis now sees the Federal Reserve as taking a balanced approach following last week’s 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 and the Dollar to give up most of its earlier gains, with a general flight to safety taking place.
The British economy is looking worse on a fundamental level as data last week showed the first quarterly GDP shrinkage in the British economy since 2012. The new British Government also seems prepared to leave the E.U. while rejecting the deal offered by the E.U. These factors are making a very bearish scenario for the Pound.
Market sentiment is more strongly risk-off and this is playing out mostly as a flow into the Euro, Japanese Yen, Swiss Franc and Gold to a lesser extent. The British Pound remains very weak and the New Zealand Dollar is also down after the surprise rate cut of 0.50% was made last week.
Technical Analysis
U.S. Dollar Index
The weekly price chart below shows that last week the USD Index moved little, printing a small near-doji candlestick. The price is up over both 3 months and over 6 months, indicating a bullish trend. The week’s price action, while slightly negative, has based off new support at 12375, which is a bullish sign which suggests that we are a little more likely to see a further rise next week than a fall.
GBP/JPY
This currency cross printed a large, strongly bearish candlestick last week, which closed right at its low, at a 2.5-year low price. These are all bearish signs. The Pound is generally very weak, driven by an increasing probability of a no-deal Brexit at the end of October and poorer than expected British economic data. The Yen is strong and is currently benefiting from a flight into safety. This puts this currency cross at the heart of the Forex market, with a probability of still lower prices over the coming week.
XAU/USD
Gold in USD terms again made its highest weekly close in over 6 years, printing a very large and bullish candlestick which closed in the upper half of its range after breaking above the resistance level at $1450. Gold Is benefiting from the current flight to safety. These are all bullish signs, but there is an area which is likely to be key resistance at $1522 and beyond. I would take a long bias but only after a daily close above $1502 as this big psychological level has seemed to offer some resistance to the strong price rise.
Conclusion
This week I forecast the best trade will be short of GBP/JPY. XAU/USD (Gold in USD terms) long should also be good following a daily close above $1503.