Trading Support and Resistance - Week Of Nov. 7

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 11 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 November 2016

This month we forecast that the highest-probability trade will be long USD/CAD.

Weekly Forecast 6th November 2016 

Last week, we made no forecast.

This week, we again make no forecast, as there were no strong counter-trend movements except in the British Pound, which we see as likely to rise further.

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

Volatility was considerably greater than it was over the previous week, with 55% of the major and minor currency pairs changing in value by more than 1%. Volatility might well be much greater over this coming week, as the U.S. Presidential election will be held onNovember 8 and is likely to get the market moving once the results become clear.

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.

GBP/USD

We had expected the level at 1.2148 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 New York/London session overlap last Monday, a time which can be crucial for this currency pair. Entry was signaled by the small bullish doji candle which formed immediately as the price was hit, marked by the up arrow within the chart below. This long trade gave a huge maximum reward to risk ratio of more than 15 to 1 so far, if the stop had been placed just below the low of the entry candlestick.