This week we’ll 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 16 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 August 2020

For the month of August, we forecast that the EUR/USD currency pair is likely to see a rise in price.

For the month of July, we made no forecast.

Weekly Forecast August 2 

Last week, we forecast that the EUR/USD currency pair would rise in value. This was a good call, as the price rose by 1.04% over the past week.

This week, we make no forecast, as there were no strong counter-trend price movements.

The Forex market showed an increase in volatility compared to the previous week, with 44% of the important currency pairs and crosses moving by more than 1% in value last week. Volatility is likely to remain at a similar level over the coming week.

Last week was dominated by relative strength in the British Pound and relative weakness in the Swiss Franc.

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 one of these key pairs last week off key support and resistance levels could have worked out:

AUD/JPY

We had expected the level at 75.53 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 near the start of last Tuesday’s Tokyo session, typically a great time to be trading currency pairs or crosses comprising the Japanese Yen and currencies in a similar geographical position such as the Australian Dollar, turning decisively bearish when a bearish doji candlestick broke down at the down arrow shown in the price chart below. This trade was profitable, achieving a maximum positive reward to risk ratio of more than 4 to 1 based upon the size of the entry candlestick.