Trading Support and Resistance - Sunday, August 27

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 previousweek.
• 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 August 2017

For the month of August, we forecasted that the best trades would be long EUR/USD and AUD/USD, and short USD/CAD. The performance to date is a little negative:

Weekly Forecast 27th August 2017

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

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

This week has been dominated by relative strength in the Euro, and relative weakness in the New Zealand Dollar.

Volatility is the same as it was last week, with approximately 26% of the major and minor currency pairs changing in value by more than 1%. Volatility is likely to be at considerably higher 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 one of these key pairs last week off key support and resistance levels could have worked out:

USD/JPY

We had expected the level at 108.69 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 bounced bullishly off this level shortly after last Monday’s New York open, which is typically a good time to trade this currency pair. The price printed a bullish outside candlestick shown in the chart below at the upwards arrow, which took 3 candlesticks to get going but then produced a fairly impressive upwards move. The maximum reward to risk ratio reached has so far been a more than adequate 3 to 1.