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 8th December 2019
In my previous piece last week, I forecasted that the best trades would be the best trades were likely to be long of the S&P 500 Index following a daily (New York) close above 3154 and long of the USD/JPY currency pair following a daily (New York) close above 109.50. We did not get such daily closes last week, therefore there was no trade.
Last week’s Forex market saw the strongest rise in the relative value of the New Zealand Dollar, and the strongest fall in the relative value of the U.S. Dollar.
Fundamental Analysis & Market Sentiment
Fundamental analysts are leaning in favor of the view that the recent quarter-point cut in the U.S. interest rate will be the last cut for a while, with Jerome Powell signaling there are likely to be no further cuts and maintaining an upbeat take on the U.S. economy.
The U.S. economy is still growing, but there are some fears of a pending recession. A major issue concerning sentiment on the U.S. and global economies is the trade dispute between the U.S. and China, with the U.S. using the treating of new tariffs later this month as leverage in negotiations. There is increasing hope that a deal will be signed soon which should be positive for the U.S. stock market. T the benchmark U.S. stock index, the S&P 500, ended the week not far from its all-time high price.
There are a few long-term trends in the Forex market, notably bullish trends in the GBP/USD and NZD/USD currency pairs, and a bearish trend in the EUR/GBP currency cross. I am wary of trading EUR/GBP short and prefer to trade GBP/USD long. The long-term bullish breakout made by the GBP/USD last week is driven by the fact that opinion polls are showing a strong government victory should happen in next Thursday’s election, which would resolve the Brexit impasse.
U.S. Dollar Index
The weekly price chart below shows last week printed a large bearish engulfing candlestick, which rejected the resistance level at 12361, and closed near the bottom of its price range. The price is below its level from 3 months ago, but slightly above its level from 6 months ago. However, it is below the resistance level at 12361. We have a preponderance of mostly bearish signs here, suggesting that next week’s action will be bearish.
S&P 500 Index
The weekly price chart below shows that last week printed a large bullish pin candlestick, which closed near its high and above all its weekly closing prices of all time. These are bullish signs, but I would like to see a daily New York close above 3154 before taking a long trade in line with this strongly bullish trend.
Over the past 6 weeks, the price has been contained within a narrow range from about 1.2750 to just under 1.3000 in what should be called a bullish flag or pennant pattern. Last week saw a strong bullish breakout from this range to new long-term highs on increasing volatility. These are bullish signs, but I want to see a New York closing price above 1.3157 before entering a long trade here.
This week I forecast the best trades are likely to be long of the S&P 500 Index following a daily (New York) close above 3154 and long of the GBP/USD currency pair following a daily (New York) close above 1.3157.