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 May 2023
For the month of April, I forecasted that the EUR/USD and GBP/USD currency pairs would rise in value.
The performance of my forecast so far this month is as follows:
For the month of May, I make the same forecast as I did in April.
Weekly Forecast 30th April 2023
Last week, I made no weekly forecast, as there were no unusually strong counter-trend price movements in the Forex market the previous week. The situation remains the same, so I again give no weekly forecast this week.
Directional volatility in the Forex market will probably increase over the coming week, as there are some extremely high-impact data releases scheduled for the coming week such as the Federal Funds Rate and US Non-Farm Payrolls.
Last week was dominated by relative strength in the New Zealand Dollar and the British Pound, and relative weakness in the Japanese Yen.
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 monitored on the more popular currency pairs this week.
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:
I had expected the level at $0.8861 might act as support in the USD/CHF 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 right at the start of last Wednesday’s New York (which can be a great time to enter trades in major currency pairs like this one) with an engulfing bar, marked by the up arrow in the price chart below signaling the timing of this bullish rejection. This trade has been profitable so far, giving a maximum reward-to-risk ratio of more than 1 to 1 based upon the size of the entry candlestick structure.
I had expected the level at $1.2502 might act as resistance 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 at the start of last Tuesday’s Tokyo session with one pin bar followed by an inside pin bar, marked by the down arrow in the price chart below signaling the timing of this bearish rejection. This trade reached a maximum reward-to-risk ratio a little higher than 7 to 1 based upon the size of the entry candlestick structure.