This week we will 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 18 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 July 2021

For the month of July, we forecast that the EUR/USD currency pair will fall in value, while the USD/JPY currency pair will rise in value. The performance to date is shown below:

Weekly Forecast July 25

Last week, we made no weekly forecast, as there were no large counter-trend price movements in any important currency pairs or crosses.

We again make no forecast this week.

The Forex market saw a very low level of volatility last week, with not one of all the important currency pairs or crosses moving by more than 1% in value. Volatility is likely to increase markedly over the coming week.

Last week was dominated by relative strength in the Canadian dollar, and relative weakness in the Japanese yen, although the values are so small as to be effectively negligible.

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 reversals from two of last week’s key levels could have worked out:

EUR/USD

We had expected the level at 1.1754 might act as support, 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 with a pin candlestick at the start of last Wednesday’s London session, typically a great time to enter new trades in major currency pairs involving an European currency, marked by the up arrow in the price chart below. This trade has been nicely profitable, achieving a maximum positive reward to risk ratio of more than 4 to 1 based upon the size of the entry candlestick.

USD/JPY

We had expected the level at 109.20 might act as support, 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 with a bullish inside candlestick not long after the start of last Monday’s New York session, often a good time to enter a new trade in a major currency pair such as the USD/JPY, marked by the up arrow in the price chart below. This trade has been profitable so far, achieving a maximum positive reward to risk ratio of more than 2 to 1 based upon the size of the entry candlestick structure.