Trading Support And Resistance - Sunday, May 6

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 May 2018

For the month of May, we forecast that the best trade would be long USD/SEK. The performance to date is as follows:

Weekly Forecast May 6, 2018

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

This week, we make no forecast, as there were again no strong weekly counter-trend movements in the Forex market.

This week has been dominated by relative strength in the U.S. Dollar, and relative weakness in the British Pound.

Volatility was about the same as it was last week, with approximately 37% of the major or minor currency pairs changing in value by more than 1%. Volatility is likely to be lower next week.

Previous Monthly Forecasts

You can view the results of our previous monthly forecasts here.

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 1.2814 might act as support, as it has 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 the support level at 1.2814 during last Monday’s New York session, a time of day at which this currency pair is typically active. It made a sharp bearish V-shaped turn, printing a bullish engulfing candlestick which rejected the level decisively, signaling a long trade entry. This trade has been very successful, achieving a maximum positive reward to risk ratio so far of more than 4 to 1.