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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.

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Monthly Forecast for January 2024

For December, I made no forecast, as although the US dollar was making long-term lows, the move was over-extended at the start of the month and thus was liable to retrace.

For January, I forecast that the EUR/USD currency pair will rise in value and that the USD/JPY pair will fall in value.

Weekly Forecast for Monday, Jan. 1, 2024

Last week, I made no weekly forecast, as there were no unusually strong counter-trend price movements. This week, I once again make no forecast for similar reasons.

Directional volatility in the Forex market decreased strongly last week, as only 19% of the most important currency pairs fluctuated over the week by more than 1%. Volatility is likely to increase over the coming week, as the first trading week of a new year may see volatile price action.

Last week was dominated by relative strength in the Swiss franc, and relative weakness was seen in the US dollar.

Key Support/Resistance Levels for Popular Pairs

I often 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's see how trading one of these key pairs last week off of key support and resistance levels could have worked out.

USD/JPY

I had expected the level at JPY140.25 might act as support in the USD/JPY 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 Thursday’s London/New York overlap session with a bullish pin bar, marked by the upward arrow, signaling the timing of this bullish 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.

(Click on image to enlarge) 

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