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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 December 2023

For the month of December, I made no forecast. Although the US dollar was making long-term lows, the move was over-extended at the start of the month and thus it was liable to retrace. This was probably a good call, as the direction of the US dollar has been volatile so far this month.

Weekly Forecast for Sunday, Dec. 17, 2023

Last week, I made no weekly forecast, as there were no unusually strong counter trend price movements in the market. This week, I once again will not provide a forecast due to a similar lack of strong movements seen throughout the trading period.

Directional volatility in the Forex market decreased last week, as 30% of the most important currency pairs were seen fluctuating by more than 1%. Volatility is likely to decrease even further over the coming week, as there are fewer high-impact data releases scheduled.

Last week was dominated by relative strength in the Japanese yen, 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.

GBP/USD

I expected that the level at $1.2507 might act as support in the GBP/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 right at the end of last Wednesday’s London session (which can be a good time to enter trades in this currency pair) with a small bullish doji candlestick, marked by the upward arrow, signaling the timing of this bullish rejection. This trade has been extremely profitable so far, giving a maximum reward-to-risk ratio of more than 14 to 1 based upon the size of the entry candlestick.

(Click on image to enlarge) 

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