The difference between success and failure in Forex trading is very likely to depend upon which currency pairs you choose to trade each week, and not on the exact trading methods you might use to determine trade entries and exits. Each week I am going to analyze fundamentals, sentiment and technical positions in order to determine which currency pairs are most likely to produce the easiest and most profitable trading opportunities over the next week. In some cases, it will be trading the trend. In other cases, it will be trading support and resistance levels during more ranging markets.

Big Picture January 19

In my previous piece last week, I forecast that the best trades were likely to be long of gold in USD terms following a daily close above $1575 and long of the S&P 500 Index in USD terms following a daily close above 3275. Gold never made a daily close above $1575 during the week, while the S&P 500 Index rose by 1.26% after closing at 3288.13 on Monday. These were good calls overall as these trades produced an averaged win of 0.63%.

Last week’s Forex market saw the strongest rise in the relative value of the Swiss Franc, and the strongest fall in the relative value of the Japanese Yen.

Fundamental Analysis & Market Sentiment

Fundamental analysts are leaning in favor of a weaker USD as the Federal Reserve is set on a course of inflating its balance sheet, and as there is little prospect of a rate increase in the foreseeable future.

The U.S. economy is still growing, and fears of a pending recession have receded. Sentiment has been aided by the completion of a “Phase One” U.S. / China trade deal. Last week showed strong U.S. consumer sentiment. There are solid reasons to be bullish on stock markets generally, especially the U.S. stock market.

We are seeing valid long-term trends in the S&P 500 Index, the DAX and the FTSE 100 (all bullish) and the USD/JPY currency pair which seems to be making a long-term bullish breakout above 110.00.

Technical Analysis

U.S. Dollar Index

The weekly price chart below shows last week printed a bullish candlestick, which closed very near to the top of its price range. The close was also above the recent resistance level at 12309 which has now probably flipped to become new support. These are bullish signs, but the price is below its levels from both 6 and 3 months ago, which indicates a bearish trend. Therefore, we have mixed signs here, and the short-term bullish action makes this week’s direction hard to predict.

USD/JPY

The USD/JPY currency pair just made its highest weekly close in 9 months. The weekly candlestick was not especially large but closed very close to the top of its price range, which is a bullish sign. There is likely to be key resistance at about 112.41, so the price has lots of room to move considering how relatively low volatility has been.

S&P 500 Index

The S&P 500 Index just made its highest ever weekly close. This is always a bullish sign and recent price data shows that after this even there is typically a 53% chance that next week will close higher still. Last week’s candlestick was bullish on above-average volatility and closed very near the top of its price range, both of which are bullish signs.

DAX 30 Index

The DAX 30 Index just made its highest ever weekly close. This is always a bullish sign and momentum is with the bulls. However, last week’s candlestick was had below-average volatility and closed very slightly down over the week, suggesting the American stock market is probably a better opportunity right now.

Conclusion

This week I forecast the best trades are likely to be long of USD/JPY and the S&P 500 Index in USD terms.