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 October 2022
For the month of October, I forecasted that the USD/JPY currency pair would increase in value. The result to date is shown below:
Weekly Forecast 16th October 2022
Last week, I forecasted that the EUR/NOK currency cross was likely to rise in value. Unfortunately, it fell by 0.76%. This week, I make no weekly forecast, as there were no unusually strong counter-trend price movements last week.
The Forex market saw an increase in directional volatility last week, with 59% of the most important currency pairs and crosses moving by more than 1% in value. Directional volatility is likely to decrease over this coming week as there are no major central bank releases due.
Last week was dominated by relative strength in the British Pound and the U.S. Dollar, and relative weakness in the Japanese Yen and the Australian 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.
Let us see how trading two of these key pairs last week off key support and resistance levels could have worked out:
EUR/USD
We had expected the level at $0.9643 might act as support in the EUR/USD 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 price chart below shows how the price rejected this level towards the end of last Thursday’s New York session with a bullish inside candlestick, marked by the up arrow signaling the timing of the bullish rejection. This trade has been profitable, achieving a maximum positive reward to risk ratio of more than 1 to 1 so far based upon the size of the entry candlestick structure.
GBP/USD
We had expected the level at $1.0942 might act as support in the GBP/USD 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 price chart below shows how the price rejected this level during last Wednesday’s Tokyo session with a small inside candlestick, marked by the up arrow signaling the timing of the bullish rejection. This trade has been extremely profitable, achieving a maximum positive reward to risk ratio of more than 12 to 1 based upon the size of the entry candlestick structure.
Ready to trade our Forex weekly forecast? Here’s a list of some of the best Forex trading platforms to check out.