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Today I will begin with my monthly and weekly forecasts of the currency pairs worth watching. The first part of my forecast is based upon 20 years' worth of research of Forex prices, which shows 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'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 for October 2022

For the month of October, I forecasted that the USD/JPY currency pair would increase in value. The result to date is shown below:

Weekly Forecast for Sunday, Oct. 9, 2022

Last week, I made no weekly forecast, as there were no unusually strong counter-trend price movements. This week, I forecast that the EUR/NOK currency cross is likely to rise in value.

The Forex market saw a decrease in directional volatility last week, with only 26% of the most important currency pairs moving by more than 1% in value. Directional volatility is likely to increase over this coming week as there are major central bank releases due.

Last week was dominated by relative strength in the New Zealand and Canadian dollars, as well as relative weakness in the Australian dollar.

Key Support/Resistance Levels for Popular Pairs

I teach that trades should be entered and exited at or near 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 the level at $0.9999 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 often work well.

The H1 price chart below shows how the price rejected this level towards the end of last Tuesday’s session with a bearish inside candlestick, marked by the down arrow, which signals the timing of the bullish rejection. This trade has been extremely profitable, achieving a maximum positive reward to risk ratio of more than 13 to 1, based upon the size of the entry candlestick structure.

GBP/USD

We had expected the level at $1.1483 might act as resistance in the GBP/USD currency pair last week, as it had similarly acted as both support and resistance previously. 

The H1 price chart below shows how the price rejected this level at the start of last Wednesday’s session with a strong bearish engulfing candlestick, marked by the down arrow, which signals the timing of the bearish rejection. This is typically a great time to be trading the British pound. This trade has been profitable, achieving a maximum positive reward to risk ratio of more than 2 to 1, based upon the size of the entry candlestick structure.

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