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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.

Monthly Forecast for January 2023

For the month of January, I forecasted that the EUR/USD currency pair would rise in value and that the USD/JPY currency pair would fall in value. The forecast performance is as follows:

Weekly Forecast for Sunday, Jan. 29, 2023

Last week, I made no weekly forecast. This week, I once again make no weekly forecast, as there were no unusually strong truly counter-trend price movements in the market throughout the week.

Directional volatility in the Forex market is likely to increase dramatically over the coming week. Last week was dominated by relative strength in the Australian dollar, and relative weakness was seen in the Japanese yen.

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 had expected that the level at $1.2437 might act as resistance 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 during Monday’s Asian session with an engulfing candlestick, marked by the downward arrow, which signals the timing of this bearish rejection. This trade has been profitable, achieving a maximum positive reward to risk ratio of more than 5 to 1 so far, based upon the size of the entry candlestick structure.

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