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:
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Trading the two currencies that are trending the most strongly over the past 3 months.
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Assuming that trends are usually ready to reverse after 12 months.
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Trading against very strong counter-trend movements by currency pairs made during the previous week.
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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 May 2019
For the month of April, we forecast that the best trade would be short EUR/USD. The forecast’s final performance is shown below:
Weekly Forecast 5th May 2019
For the month of May, we again forecast that the best trade will be short EUR/USD.
Last week, we made no weekly forecast. This week, we again make no forecast, as there were no large counter-trend price movements over the past week.
A little less than a third of currency pairs or crosses moved by more than 1% in value over the past week. Volatility is likely to lower over the coming week.
Last week was dominated by relative strength in the British Pound, and relative weakness in the Australian Dollar.
Previous Monthly Forecasts
You can view the results of our previous monthly forecasts here.
Key Support/Resistance Levels 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:
USD/CAD
Let’s see how trading two of these key pairs last week off key support and resistance levels could have worked out:
We had expected the level at 1.3473 might act as resistance, 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 rejected this level near the start of last Monday’s New York session (a great time to trade North American currency pairs such as USD/CAD) turning bearish right away with an engulfing candlestick signaling the timing of the turn. This trade was very profitable, achieving a maximum positive reward to risk ratio of more than 4 to 1.
AUD/USD
We had expected the level at 0.6986 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 rejected this level near the start of last Friday’s Asian session (a great time to trade Asian currencies such as the AUD) turning right away with a bullish inside candlestick signaling the timing of the turn. This trade has been profitable, achieving a maximum positive reward to risk ratio so far of more than 1 to 1.
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