This week I will begin with my monthly and weekly Forex forecast 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 August 2022
Interest Rate Differential
Performance to Date
+2.00% (2.50% - 0.50%)
For the month of August, I forecasted that the EUR/USD currency pair would decline in value. The result so far is shown below:
Monthly Forex Forecast Performance
Weekly Forecast 14th August 2022
Last week, I forecasted that the NZD/USD currency pair would fall in value over the week, as it made a strong counter-trend price movement over the previous week.
This was a great call, as the NZD/USD fell by 4.26% over the week.
The Forex market saw a slight decrease in directional volatility last week, with 52% of all the important currency pairs or crosses moving by more than 1% in value. Directional volatility is likely to be lower over this coming week as although there are a few key news releases scheduled, we are unlikely to see any with a very strong impact on the market, possibly excepting a surprise in the forthcoming US preliminary GDP data release.
Last week was dominated by relative strength in the US Dollar, and relative weakness in the New Zealand Dollar.
You can trade my 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.
Key Support / Resistance Levels
Support: 0.6797, 0.6784, 0.6719, 0.6683Resistance: 0.6882, 0.6964, 0.6993, 0.7063
Support: 1.0000, 0.9950, 0.9900, 0.9850Resistance: 1.0046, 1.0070, 1.0099, 1.0146
Support: 1.1695, 1.1400, 1.1300, 1.1200Resistance: 1.1850, 1.1864, 1.1878, 1.1926
Support: 136.73, 136.38, 135.59, 134.66Resistance: 137.40, 138.38, 140.00, 141.00
Support: 93.67, 93.10, 91.88, 91.53Resistance: 94.67, 95.23, 95.54, 96.16
Support: 137.22, 136.95, 136.64, 136.28 Resistance: 138.53, 140.22, 141.14, 141.93
Support: 1.2974, 1.2966, 1.2880, 1.2860Resistance: 1.3046, 1.3090, 1.3179, 1.3206
Support: 0.9556, 0.9501, 0.9471, 0.9427Resistance: 0.9594, 0.9663, 0.9722, 0.9749
Key Support and Resistance Levels
Let us see how trading two of these key pairs last week off key support and resistance levels could have worked out:
We had expected the level at 132.65 might act as support in the USD/JPY currency pair last week, as it had acted previously as both support and resistance. Note how these “role reversal” levels can work well. The H1 chart below shows how the price rejected this level right at the start of last Monday’s New York session with a doji candlestick, marked by the up arrow signaling the timing of the bullish bounce. This is typically a great time of day to be entering trades in major Forex currency pairs. This trade has been extremely profitable, achieving a maximum positive reward to risk ratio of more than 13 to 1 so far based upon the size of the entry candlestick structure.
USD/JPY Hourly Price Chart
We had expected the level at 134.97 might act as support in the EUR/JPY currency cross last week, as it had acted previously as both support and resistance. Note how these “role reversal” levels can work well. The H1 chart below shows how the price rejected this level right at the start of last Tuesday’s Tokyo session with a bullish hammer candlestick, marked by the up arrow signaling the timing of the bullish bounce. This is typically a great time of day to be entering trades in Forex currency crosses involving the Japanese Yen. This trade has been nicely profitable, achieving a maximum positive reward to risk ratio of more than 5 to 1 so far based upon the size of the entry candlestick.