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’s 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 December 2019

For the month of December, we forecast that the best trade would be long USD/JPY. The performance to date is as follows:

Weekly Forecast December 15

Last week, we made no weekly forecast as there were no very strong countertrend movements. This week we again make no forecast.

The Forex market has become more active, with 33% of the important currency pairs and crosses moving by more than 1% in value over the past week. Volatility is likely to be similar over the next week.

Last week was dominated by relative strength in the British Pound, and relative weakness in the Japanese Yen.

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 should be watched on the more popular currency pairs this week, which might result in either reversals or breakouts:

GBP/USD

Let’s see how trading one of these key pairs last week off key support and resistance levels could have worked out:

We had expected the level at 1.3081 might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work very well. The H1 chart below shows how towards the end of last Thursday’s New York close, the price bounced strongly off that level, forming a large bullish engulfing candlestick marked by the up arrow in the price chart below, which immediately broke to the upside. This trade was driven to success mostly by reports coming in from political parties that the Government was cruising to a strong victory in the British general election. This trade has given an excellent maximum reward to risk ratio so far approximately 4 to 1.