Image Source: Unsplash

This week I will begin with my monthly and weekly Forex forecast of the currency pairs worth watching. 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 six 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 for August 2022

For the month of August, I forecasted that the EUR/USD currency pair would decline in value. The result so far is shown below:

Weekly Forecast for Sunday, Aug. 28, 2022

Last week, I made no weekly forecast, as there were no unusually strong counter-trend price movements in the Forex market over the previous week. This week, I once again make no forecast.

The Forex market saw a strong decrease in directional volatility last week, with only one of the important currency pairs moving by more than 1% in value. Directional volatility is likely to be higher over this coming week as there are a few major releases due, and the impact of Powel’s speech last Friday is likely to continue to drive markets as this week opens.

Last week was dominated by relative strength in the Australian and US dollars, and relative weakness in the New Zealand 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 watched 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

We had expected that the level at $1.0070 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 following Jerome Powell’s hawkish speech near the start of last Friday’s session with a large bearish outside candlestick, marked by the down arrow which signals the timing of the bullish bounce.

This is typically a great time of day to be entering trades in major Forex currency pairs. This trade has been profitable, and it has achieved a maximum positive reward to risk ratio of less than 1 to 1 so far, based upon the size of the entry candlestick.

GBP/USD

We expected that the level at $1.1878 might also act as resistance in the GBP/USD currency pair last week. The H1 price chart below shows how the price rejected this level following Powell’s speech, marked similarly by an arrow. This trade has also been profitable, and it has achieved a maximum positive reward to risk ratio of less than 1 to 1.

More By This Author: