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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 May 2023

For the month of May, I forecasted that the EUR/USD and GBP/USD currency pairs would rise in value. The performance of my forecast so far this month is as follows:

Weekly Forecast for Sunday, May 28, 2023

Last week, I made no weekly forecast, as there were no unusually large counter-trend price movements seen in the market, which is the basis of my weekly trading strategy. The situation seems to be the same this week, so I once again give no weekly forecast.

Directional volatility in the Forex market increased last week, with 59% of the most important currency pairs and crosses fluctuating over the week by more than 1%. Volatility will probably decline over the coming week, as we have a relatively light array of high-impact data releases scheduled in the coming days.

Last week was dominated by relative strength in the US dollar, and relative weakness was seen in the New Zealand dollar and 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 the level at $1.2309 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 during last Thursday’s New York session (which can be a great time to enter trades in major currency pairs like this one) with an outside engulfing candlestick, marked by the upward arrow, signaling the timing of this bullish rejection. This trade has been profitable so far, giving a maximum reward-to-risk ratio of more than 2 to 1 based upon the size of the entry candlestick.

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