This week we will 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 18 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 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 February 2021

For the month of January, we forecasted that the EUR/USD currency pair will be likely to rise in value. The final performance is shown in the table below (FXE,UDN):

For the month of February, we forecast that the USD/JPY (FXY) currency pair will be likely to rise in value following a daily close above 105.00.

Weekly Forecast January 31, 2021

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

This week, we again make no forecast, as there were no strong counter-trend movements in the Forex market whatsoever.

The Forex market showed a relatively low level of volatility compared to the previous week, with only 4% of the important currency pairs and crosses moving by more than 1% in value last week. Volatility is likely to increase over the coming week.

Last week was dominated by relative strength in the New Zealand dollar, and relative weakness in the Japanese yen.

Previous Monthly Forecasts

You can view the results of our previous monthly forecasts here.

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 key support and resistance levels that can be watched on the more popular currency pairs this week.

Let us see how trading reversals from two of last week’s key levels would have worked out:

GBP/USD

We had expected the level at 1.3759 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 the price rejected this level with a bearish engulfing candlestick structure right at the beginning of last Wednesday’s London session, marked by the down arrow in the price chart below, which is typically a ret time to be trading currency pairs of crosses such as this one which include the British Pound (FXB). This trade has been very profitable, achieving a maximum positive reward to risk ratio of almost 4 to 1 so far based upon the size of the entry candlestick structure.

EUR/USD

We had expected the level at 1.2060 might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work well. The H1 chart below shows how the price rejected this level with a bullish inside candlestick structure during last Wednesday’s London/New York session overlap, marked by the up arrow in the price chart below, which is typically a good time to be trading major currency pairs such as this one. This trade has been profitable so far, achieving a maximum positive reward to risk ratio of a little more than 1 to 1 based upon the size of the entry candlestick structure.

That is all for this week.