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 11 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 February 2014

We forecasted that the pair most likely to change in value significantly during the month of February would be USD/CAD. This pair had been the strongest mover over the previous 6 months and, with the exception of the CHF, over the previous 3 months as well. The strong move in CHF looked abnormal and suspicious. The performance of the monthly forecast to date has been as follows:

Weekly Forecast 22^nd February 2015 

There was no weekly forecast last week. There is also no forecast this week, as there were no strong counter-trend moves.

This week saw a continuation of the mostly counter-trend moves of the previous two weeks, until the end of the week when some of the longer-term trends began to reassert themselves, but not very strongly. The strong USD seems to be losing its momentum, with strength now being mostly exhibited in the GBP. The weakest currencies look to be CAD, then EUR, followed by the AUD. However none of these are falling by much. Overall, the market looks mostly uncertain and choppy.

There was a meaningful decrease in volatility this week, with about two-thirds of the major and minor currency pairs fluctuating in value by less than 1%.

You can trade our forecasts in a real or demo Forex brokerage account.

Previous Monthly Forecasts

Our Forecast for January 2015 was long USD/JPY. The forecast did not perform positively, as shown below:

Our forecast for December 2014 was long USD/JPY. The forecast performed positively, as shown below:

Our forecast for November 2014 was long USD/JPY. The forecast performed extremely positively, as shown below:

Our forecast for October 2014 was short EUR/USD and long USD/JPY. The forecast performed very positively, as shown below:

Earlier monthly forecasts may be seen here.

Key Support/Resistance Levels for Popular Pairs

At the FX Academy, 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 one of these key pairs last week off key support and resistance levels could have worked out:

AUD/JPY

We had expected the level at 93.20 might act as resistance, as it had acted previously as both support and resistance. Note how these “flipping” levels can work really well. The H4 chart below shows how the price rose to hit this level during the late part of the New York session last Tuesday, forming a nice three candle reversal pattern: a semi-pin, followed by a doji, followed by a bearish inside candle. This was a very good price action signal to go short, and the price fell. However after really starting to fall, the short move was placed in danger by a large bullish engulfing candle, which was a signal to take and/or protect profits, so ultimately this trade did not work out so very well.

EUR/JPY

We had expected the level at 134.00 might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work really well. The H4 chart below shows how the price fell to hit this level during the late part of the New York session last Monday, forming a three candle reversal pattern: a pin, followed by a semi-pin, followed by a bullish engulfing candle. This was a very good price action signal to go short, and the price fell. Unfortunately, after an initial strong rise, the price failed to make a higher swing high, which was a sign to take and/or protect profits. Note how the price has again bounced up from the support level at 134.00.