This week I will begin with my monthly and weekly Forex forecast of the currency pairs worth watching. The first part of my forecast is based upon my research of the past 20 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 6 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 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:

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Monthly Forecast December 2023

For the month of November, I made no forecast, as the US Dollar was making a deep counter-trend retracement.

For the month of December, I again made no forecast, as although the US Dollar was making long-term lows, the move was over-extended at the start of the month so was liable to retrace. This was probably a good call, as Dollar direction has been volatile so far this month.

Weekly Forecast 10^th December 2023

Last week, I made no weekly forecast, as I did not expect a rebound in the EUR/JPY currency cross despite its strong counter trend move. That was a good call.

This week, I make no forecast as there were no unusually strong counter trend price movements in the Forex market.

Directional volatility in the Forex market again increased last week with 52% of the most important currency pairs fluctuating over the week by more than 1%. Volatility is likely to increase even further over the coming week, as there are some very high-impact data releases scheduled, including US CPI and the FOMC policy meeting.

Last week was dominated by relative strength in the Japanese Yen, and relative weakness in the Australian Dollar.

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

Key Support/Resistance Levels for Popular Pairs

I 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.

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Let us see how trading two of these key pairs last week off key support and resistance levels could have worked out:

AUD/USD

I had expected the level at $0.6684 might act as resistance in the AUD/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 right at the start of last Monday’s Asian session with a small bearish pin bar, which was also an inside bar, marked by the down arrow in the price chart below signaling the timing of this bearish rejection. This trade has been extremely profitable so far, giving a maximum reward to risk ratio of more than 10 to 1 based upon the size of the entry candlestick structure.

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USD/CAD

I had expected the level at $1.3484 might act as support in the USD/CAD 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 right at the start of last Monday’s Asian session with an engulfing candlestick, marked by the up arrow in the price chart below signaling the timing of this bullish rejection. This trade has been extremely profitable so far, giving a maximum reward to risk ratio of more than 4 to 1 based upon the size of the entry candlestick structure.

(Click on image to enlarge)

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