Trading Support And Resistance - Feb. 11

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 February 2018

For the month of February, we forecast that the best trades would be long EUR/USD and GBP/USD. The performance to date is as follows:

Weekly Forecast 11th February 2018

Last week, we made no forecast.

This week, we forecast that the CHF/JPY currency cross is likely to rise in value.

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

Volatility was higher than it was last week, with more than 55% of the major or minor currency pairs changing in value by more than 1%. Volatility is likely to be at a similar level over this coming week, fed by high volatility in stock markets. 

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 one of these key pairs last week off key support and resistance levels could have worked out:

USD/CAD

We had expected the level at 1.2400 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 the how the price hit this level during the early part of the London session last Monday, which is typically a good time to enter Forex trades. A possible entry was signaled by the reasonably large bullish engulfing candle which formed immediately after the price level (which also happened to be a round number) was hit, marked by the up arrow within the chart below. This long trade has so far given an excellent maximum reward to risk ratio of almost 7 to 1, if the stop had been placed just below the swing low at the entry candlestick.