Trading Support and Resistance

Adam Lemon

For the month of May, we forecast that the best trade will be short USD/JPY.

This week we’ll begin with our monthly and weekly forecasts of the currency pairs worth watching. The first part of our forecast is based upon our research of the past 16 years of Forex prices, which show that the following methodologies have all produced profitable results:

Let’s look at the relevant data of currency price changes and interest rates to date, which we compiled using a trade-weighted index of the major global currencies:

Currency Price Changes and Interest Rates

Monthly Forecast May 2020

For the month of May, we forecast that the best trade will be short USD/JPY.

For the month of April, we forecasted that the best trade would be short AUD/USD. The final performance was negative, as shown below:

April Performance

Weekly Forecast 3rd May 2020

Last week, we made no forecast, as there were no recent and strong counter-trend movements.

We again make no forecast this week.

The Forex market is showing an increased level of price activity compared to the previous week, with 26% of the important currency pairs and crosses moving by more than 1% in value over the past week. Volatility is likely to remain at a similar level over the coming week.

Last week was dominated by relative strength in the Euro, and relative weakness in the U.S. Dollar.

You can trade our forecasts in a real or demo Forex brokerage account.

Previous Monthly Forecasts

You can view the results of our previous monthly forecasts here.

Key Support/Resistance Levels for Popular Pairs

We teach that trades should be entered and exited at or very close to key support and resistance levels. There are certain key support and resistance levels that can be watched on the more popular currency pairs this week.

Key Support and Resistance Levels

Let’s see how trading two of these key pairs last week off key support and resistance levels could have worked out:

GBP/USD

We had expected the level at 1.2624 might act as resistance, as it had acted previously as both support and resistance. Note how these “flipping” levels can work well. The H1 chart below shows how the price rejected this level during last Thursday’s London/New York session overlap (a great time to trade European/American mix currency pairs such as GBP/USD) turning bearish right away with a pin candlestick marked by the down arrow signaling the timing of the turn. This trade has been profitable, achieving a maximum positive reward to risk ratio of approximately 2 to 1 so far based upon the size of the entry candlestick.

GBP/USD

EUR/JPY

We had expected the level at 116.43 might act as resistance, as it had acted previously as both support and resistance. Note how these “flipping” levels can work well. The H1 chart below shows how the price rejected this level during the first half of last Monday’s Asian session (a great time to trade partly Asian currency pairs such as EUR/JPY) turning bearish right away with a near-pin candlestick marked by the down arrow signaling the timing of the turn. This trade was profitable, achieving a maximum positive reward to risk ratio of approximately 4 to 1 based upon the size of the entry candlestick.

EUR/JPY

That’s all for this week. You can trade our forecasts in a real or demo Forex brokerage account to test the strategies and strengthen your self-confidence before investing real funds.

About the Author
Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.
Learn more from Adam in his free lessons at FX Academy

Currency Pairs:
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