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 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:

Monthly Forecast January 2018

For the month of January, we forecast that the best trades would be short USD/JPY and long USD/CAD. The performance to date is as follows:

Weekly Forecast January 27

We made no forecast last week, as there were no exceedingly strong counter-trend moves. We again make no forecast this week, as the movement in the British Pound looks set to continue rather than reverse.

About 44% of the important currency pairs or crosses moved by more than 1% in value over the past week. Volatility has remained steady and will probably be at a similar level over the coming week.

This week has been dominated by relative strength in the British Pound, and relative weakness in the U.S. Dollar.

Previous Monthly Forecasts

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:

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

GBP/USD

We had expected the level at 1.3085 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 the how the price rejected this level just after the start of the Asian session last Thursday, marked by the down arrow in the price chart below, forming a bearish pin candlestick which broke down right away then quickly fell decisively. Such candlesticks are often useful indicators of reversals when their wicks or the wick of the structure rejects key levels. This trade was profitable, achieving a maximum positive reward to risk ratio of about 2 to 1. Note that it was clearly a counter-trend trade, so only conservative profit targets should have been anticipated.

USD/CAD

We had expected the level at 1.3367 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 the how the price rejected this level just after the start of the New York session last Thursday (typically a profitable time to enter trades in North American currencies), marked by the down arrow in the price chart below, forming a bearish pin candlestick which broke down right away then soon fell decisively. Such candlesticks are often useful indicators of reversals when their wicks or the wick of the structure rejects key levels. This trade has been very profitable, achieving a maximum positive reward to risk ratio of more than 5 to 1 so far.