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 15th December 2019
In my previous piece last week, I forecasted that the best trades would 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. These were great calls, especially for the GBP/USD currency pair which closed at 1.3195 on Wednesday and then ended the week up by 1.01% from there. The S&P 500 Index closed above 3154 on Thursday but ended the week basically unchanged.
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 Japanese Yen.
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 recently 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. However, the deal has yet to materialize and Friday saw the release of poorer than expected U.S. retail sales data and the Dollar fell again over the past week. The benchmark U.S. stock index, the S&P 500, ended the week at an all-time weekly closing high price.
There are a few long-term trends in the Forex market, notably a bullish trend in the British Pound which is most strongly manifested in GBP/USD and GBP/JPY. The long-term bullish breakout made by the GBP/USD was pushed to a climax by the landslide British election victory for the governing Conservative Party, signaling a much firmer government and the exit of the U.K. from the E.U. at the end of January 2020. Attention will now turn towards the likely terms of Brexit upon which the British Government will proceed.
Technical Analysis
U.S. Dollar Index
The weekly price chart below shows last week printed a large bearish candlestick, although it closed within the top half of its price range. The price is below its levels from both 3 and 6 months ago, which is also a bearish sign. The weekly close was the lowest in 6 months. We have a preponderance of mostly bearish signs here, suggesting that next week’s action will most likely be bearish.
S&P 500 Index
The weekly price chart below shows that last week printed a bullish candlestick, which closed near its high and above all its weekly closing prices of all time. These are bullish signs, suggesting that the price is likely to rise further over the coming week.
GBP/USD
The price made its highest weekly close in 9 months at the end of last week. It had already made a long-term bullish breakout and then spiked strongly to a price beyond the psychological round number at 1.3500 as the strong Conservative victory in the U.K.’s general election became clear in the early hours of Friday. The price subsequently sold off on “buy the rumor, sell the fact”. Much will now depend upon whether the price can make a daily close over this coming week above 1.3329, which would indicate a further rise over the week is somewhat likely. However, it is quite possible that the price will continue to drift down over the coming days as attention turns towards the details of the Brexit that is bound to happen now within just a few weeks.
Conclusion
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 3170 and long of the GBP/USD currency pair following a daily (New York) close above 1.3329.