This week we will 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 18 years of Forex prices, which show that the following methodologies have all produced profitable results:
- Trading the two currencies that are trending the most strongly over the past 3 months.
- Assuming that trends are usually ready to reverse after 12 months.
- Trading against very strong counter-trend movements by currency pairs made during the previous week.
- Buying currencies with high interest rates and selling currencies with low interest rates.
Let us 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:
Monthly Forecast June 2021
For the month of June, we forecasted that the USD/CAD currency pair would fall in value, and the CAD/JPY currency cross would rise in value. The performance of the forecast so far is shown below:
Weekly Forecast 20th June 2021
Last week, we made no weekly forecast, as there were no large counter-trend price movements in any important currency pairs or crosses.
This week, although we have seen strong counter-trend movements, we believe the strong momentum which developed towards the end of last week is quite likely to continue, so we do not want to forecast a reversal. Generally, we are seeing strong risk-off flow into the U.S. dollar and Japanese yen, and this seems likely to continue.
The Forex market showed a major increase in its level of volatility last week, as I forecasted, with 56% of the important currency pairs and crosses again moving by more than 1% in value. Volatility is likely to fall somewhat or remain the same over the coming week.
Last week was dominated by great relative strength in the U.S. dollar, and relative weakness in the commodity currencies (CAD, AUD, NZD) and precious metals (gold and silver). The size and speed of this price movement is a strong change from the recent market environment which suggests that now is a great time to try to get involved in a trade.
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.
Let us see how trading reversals from two of last week’s key levels would have worked out:
USD/CAD
We had expected the level at 1.2131 might act as support, 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 with a bullish doji candlestick just after the open of last Monday’s New York session (which is typically a great time to be trading North American currency pairs such as this one), marked by the up arrow in the price chart below. This trade has been very profitable due to the very strong price reversal seen last week, achieving a maximum positive reward to risk ratio of an incredible 19 to 1 based upon the size of the entry candlestick.
USD/CHF
We had expected the level at 0.8970 might act as support, 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 with a bullish inside candlestick just after the start of last Tuesday’s London session, marked by the up arrow in the price chart below, which is typically a good time to be trading the Forex market. This trade has been extremely profitable so far, achieving a maximum positive reward to risk ratio to date of more than 15 to 1 based upon the size of the entry candlestick structure.
