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 5th January 2020
In my previous piece last week, I forecasted that the best trades were likely to be long of the S&P 500 Index following a daily (New York) close above 3240 and long of the EUR/USD and NZD/USD currency pairs. These were not good calls as the S&P 500 Index closed at 3257.9 on Thursday but then closed down on Friday by 0.71% from there. The EUR/USD closed down by 0.18% while the NZD/USD currency pair closed down by 0.51%. Last week’s trades produced an averaged loss of 0.47%.
Last week’s Forex market saw the strongest rise in the relative value of the Japanese Yen, and the strongest fall in the relative value of the Australian 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 recent FOMC Meeting Minutes showing that the FOMC is broadly satisfied to stand still for the foreseeable future on rates.
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, although the situation has improved here as it seems that “Phase One” of a U.S. / China trade deal is about to be signed.
Market sentiment is dominated by rising tension in the Middle East following the U.S. action on Friday which killed the Iranian General in charge of Iran’s proxy military activities. This event saw stocks lower and safe haven assets, notably gold, rise in value, while riskier assets began to sell off.
Friday produced counter trend moves which have sent most of the long-term trends in the Forex market into seeming hibernation. However, the price of Crude Oil and therefore the Canadian Dollar got a boost on Friday, as did gold, so we do see a valid long-term bullish trend in gold and a bearish one in the USD/CAD currency pair.
U.S. Dollar Index
The weekly price chart below shows last week printed a bullish pin candlestick, which closed near the top of its price range. This is a weakly bullish sign, but the price is below its levels from both 3 and 6 months ago, which indicates a long-term bearish trend. The price is well below the key resistance level at 12310. We have mostly bearish signs here, but the short-term bullish action makes this week’s direction hard to predict.
Gold in USD terms just made its highest weekly close in more than 6 and a half years at the end of last week. Last week’s candlestick candlestick was strongly bullish on above-average volatility and closed almost right on its high, both of which are bullish signs. Gold was already strengthening but the safe haven asset got a boost at the end of the week as military tensions in the Middle East spiked. The only thing bulls seem to have to worry about is the potentially resistant inflection price just ahead at $1557.31, but the price seems poised to continue to make a major, long-term bullish breakout.
The price of this currency pair made its lowest weekly close in almost 18 months at the end of last week. This is a bearish sign, but note that this long-term trend can be bouncy, and we already saw a bullish bounce here from the support level at 1.2962, so bears should probably be a little cautious and try to manage short trades actively on shorter time frames. The main reason for the sharp move down at the end of last week was the spike in the price of Crude Oil which has boosted the Canadian Dollar, but it is also true that the Canadian Dollar was already quite strong.
This week I forecast the best trades are likely to be long of gold in USD terms and short of the USD/CAD currency pair.