Trading Support & Resistance - Oct. 29

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 October 2017

For the month of October, we forecast that the best trade will be long GBP/USD. So far, the performance has been negative:

For the month of November, we forecast that the best trades will be long USD/JPY, short EUR/USD, and long USD/CHF.

Weekly Forecast 29th October 2017

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

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

Volatility was a considerably higher than it was last week, with more than half of the major and minor currency pairs changing in value by more than 1%. Volatility is likely to be even 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 

 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 1.3226 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 how after holding practically to the exact pip, the price bounced bearishly off this level and then returned with another rejection of same level, marked by the second downwards arrow in the chart below, by a bearish inside candlestick which broke bearishly straight away. The maximum reward to risk ratio reached in this trade was very good, more than 10 to 1. This excellent result is partly because the risk on the entry candlestick formation was only approximately 10 pips. Usually, larger pin candlesticks are more likely to provide better entries than smaller ones, but it worked well in this case.