Trading Support And Resistance - Sunday, August 16

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 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 2020

For the month of August, we forecast that the EUR/USD currency pair was likely to see a rise in price. The performance so far is as follows:

Weekly Forecast August 16

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

The Forex market showed an increase in volatility compared to the previous week, with 26% of the important currency pairs and crosses moving by more than 1% in value last week. Volatility is likely to be lower over the coming week, however, due to a near-total absence of high impact scheduled economic data releases.

Last week was dominated by relative strength in the Canadian Dollar and relative weakness in the Japanese Yen.

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 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:

USD/CHF

We had expected the level at 0.9112 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 how the price rejected this level right at the start of last Tuesday’s New York session, typically a great time to be trading currency pairs involving the U.S. Dollar, turning decisively bullish when a  strongly bullish pin candlestick broke up right away at the up arrow shown in the price chart below. This trade was nicely profitable, achieving a maximum positive reward to risk ratio of approximately 4 to 1 based upon the size of the entry candlestick.

USD/CAD

We had expected the level at 1.3201 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 how the price rejected this level near the start of last Thursday’s New York session, typically a great time to be trading North American currencies pairs such as the U.S. and Canadian Dollars, finally turning decisively bullish when the double inside candlesticks broke upwards at the up arrow shown in the price chart below. This trade has been profitable so far, achieving a maximum positive reward to risk ratio in floating profit a little greater than 1 to 1 based upon the size of the entry candlestick structure.