Trading Support And Resistance - Dec. 4

This week we’ll 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 16 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’s take a 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 December 2017

For the month of November, we forecast that the best trades would be long USD/JPY, short EUR/USD, and long USD/CHF. The performance was negative, as follows:

For the month of December, we forecast that the best trades will be long EUR/USD, long GBP/USD, and long USD/JPY.

Weekly Forecast 3rd December 2017

Last week, we made no forecast, as there were no strong counter-trend movements.

This week, we again make no forecast, as there were again no strong counter-trend movements.

This week has been dominated by relative strength in the British Pound, and relative weakness in the Japanese Yen.

Volatility was significantly higher, with 26% of the major or minor currency pairs changing in value by more than 1%. Volatility is likely to be higher still over this coming week. 

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 should be watched on the more popular currency pairs this week, which might result in either reversals or breakouts:

Let’s 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 1.1813 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 this level, when first hit, produced an attractive bullish pin candlestick. This long trade would have produced an acceptable maximum reward to risk ratio of about 3 to 1 if profit had been taken optimally.

GBP/USD

We had expected the level 1.3221 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 this level, when first hit, produced an attractive low-risk bullish doji candlestick. This long trade would have produced an acceptable maximum reward to risk ratio of about 8 to 1 if profit had been taken optimally.