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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 7, 2023

Last week, I made no weekly forecast, as there were no unusually strong counter-trend price movements in the Forex market at the time. This week, I forecast that the EUR/AUD currency cross will rise in value.

Directional volatility in the Forex market will probably remain the same or increase over the coming week, as there are some extremely high-impact data releases scheduled for the coming week, such as US CPI data.

Last week was dominated by relative strength in the Australian dollar, and relative weakness was seen in the US dollar.

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 two of these key pairs last week off of key support and resistance levels could have worked out.

EUR/USD

I had expected the level at $1.1089 might act as resistance in the EUR/USD currency pair last week, as it had previously acted 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 right at the start of last Thursday’s London session (which can be a great time to enter trades in major currency pairs like this one) with an engulfing bar, marked by the downward arrow, signaling the timing of this bearish rejection. This trade has been nicely profitable so far, giving a maximum reward-to-risk ratio of approximately 5 to 1 based upon the size of the entry candlestick.

AUD/JPY

I had expected the level at JPY89.22 might act as resistance in the AUD/JPY currency cross last week, as it had similarly acted as both support and resistance previously. 

The H1 price chart below shows how the price rejected this level during last Thursday’s New York session with an inside bar which was also nearly a doji, marked by the upward arrow, signaling the timing of this bullish rejection. This trade reached a maximum reward-to-risk ratio a little higher than 5 to 1 based upon the size of the entry candlestick structure.

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