This week I will begin with my monthly and weekly Forex forecast of the currency pairs worth watching.

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The first part of my forecast is based upon my research of the past 20 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 6 months.
• Trading against very strong weekly counter-trend movements by currency pairs made during the previous week.
• Carry Trade: Buying currencies with high interest rates and selling currencies with low interest rates.

Let us 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 August 2023

I make no forecast for the month of August, because I do not see any trends in the Forex market which look reliable enough.

For the month of July, I forecasted that the USD/JPY currency pair would rise in value.

The final performance of this forecast was as follows:

Weekly Forecast  August 6, 2023

Last week, I made no weekly forecast, as there were no unusually strong counter-trend price movements.

I make no forecast again this week, as this situation remains unchanged.

Directional volatility in the Forex market declined again last week with only 7% of the most important currency pairs and crosses fluctuating over the week by more than 1%. Volatility may be a little higher over the coming week, as we have a release of US CPI (inflation) data due, which tends to be the main driver of the Forex market these days.

Last week was dominated by relative strength in the Japanese Yen, and relative weakness in the Australian Dollar.

Key Support/Resistance Levels for Popular Pairs

I 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 can be monitored on the more popular currency pairs this week.

Let us see how trading two of these key pairs last week off key support and resistance levels could have worked out:

EUR/USD

I had expected the level at $1.1038 might act as resistance in the EUR/USD currency pair last week, as it had acted previously as both support and resistance. Note how these “role reversal” levels can work well. The H1 price chart below shows how the price rejected this level during last Monday’s London/New York session overlap (which can be a great time to enter Forex trades in major currency pairs such as this one) with an engulfing bar, marked by the red down arrow in the price chart below signaling the timing of this bearish rejection. This trade was nicely profitable, giving a maximum reward-to-risk ratio of more than 3 to 1 based upon the size of the entry candlestick.

USD/CHF

I had expected the level at 0.8775 might act as resistance in the USD/CHF currency pair last week, as it had acted previously as both support and resistance. Note how these “role reversal” levels can work well. The H1 price chart below shows how the price rejected this level right at the start of last Tuesday’s London/New York session overlap (which can be a great time to enter Forex trades in major currency pairs such as this one) with a bearish inside bar, marked by the red down arrow in the price chart below signaling the timing of this bearish rejection. This trade was profitable, giving a maximum reward-to-risk ratio of more than 1 to 1 based upon the size of the entry candlestick structure.

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