This week I will begin with my monthly and weekly forecasts of the currency pairs worth watching. The first part of my forecast is based upon my research of the past 20 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 6 months.
- Trading against very strong weekly counter-trend movements by currency pairs made during the previous week.
- Carry Trade: 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 February 2022
For the month of February, I forecasted that the EUR/USD currency pair will fall in value. The performance to date of this forecast is as follows:
Currency Pair | Forecast Direction | Interest Rate Differential | Performance to Date |
EUR/USD | Short ↓ | +0.25% (0.25% - 0.00%) | -1.94% |
Weekly Forecast 6th February 2022
In my previous forecast last week, I made no weekly forecast, as there were no unusually strong counter-trend movements. Fading strong weekly counter-trend price movements is the basis of my weekly trading strategy.
This week, I forecast that the GBP/SEK currency cross will rise in value, as it made a very strong counter trend move last week.
The Forex market saw its level of directional volatility remain the same last week, as I had expected, with 48% of all the important currency pairs or crosses moving by more than 1% in value. Directional volatility is likely to remain at a similar level this coming week or decrease, as there are few high-impact events scheduled over the coming week except the release of US CPI (inflation) data.
Last week was dominated by relative strength in the Euro, and relative weakness in the Swiss Franc.
You can trade our forecasts in a real or demo Forex brokerage account.
Key Support/Resistance Levels for Popular Pairs
I 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.
Currency Pair | Key Support / Resistance Levels |
AUD/USD | Support: 0.7006, 0.6963, 0.6926, 0.6885 Resistance: 0.7080, 0.7104, 0.7170, 0.7188 |
EUR/USD | Support: 1.1435, 1.1403, 1.1387, 1.1368 Resistance: 1.1671, 1.1688, 1.1711, 1.1753 |
GBP/USD | Support: 1.3512, 1.3401, 1.3375, 1.3340 Resistance: 1.3587, 1.3664, 1.3769, 1.3852 |
USD/JPY | Support: 114.80, 114.55, 114.23, 113.07 Resistance: 115.39, 116.00, 116.29, 116.79 |
AUD/JPY | Support: 80.79, 80.40, 79.81, 78.59, 78.14 Resistance: 81.76, 81.91, 83.00, 83.75 |
EUR/JPY | Support: 128.30, 127.44, 126.88, 126.65 Resistance: 129.31, 130.00, 130.62, 130.84 |
USD/CAD | Support: 1.2718, 1.2645, 1.2535, 1.2498 Resistance: 1.2812, 1.2901, 1.2959, 1.3025 |
USD/CHF | Support: 0.9235, 0.9159, 0.9072, 0.9000 Resistance: 0.9260, 0.9291, 0.9370, 0.9387 |
Let us see how trading reversals from one of last week’s key levels could have worked out:
USD/JPY
I had expected the level at 114.23 might function 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 very large, dramatic outside bar right at the start of last Wednesday’s New York session (typically a great time to enter trades in a major Forex currency pair such as this one), marked by the up arrow in the price chart below. This trade has been nicely profitable, achieving a maximum positive risk reward ratio of more than 3 to 1 based upon the size of the entry candlestick.
That is all for this week. You can trade my forecasts in a real or demo Forex brokerage account to test the strategies and strengthen your self-confidence before investing real funds.