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 January 2016

This month, we forecasted that the USD will rise against the GBP, CHF and CAD, suggesting long USD/CHF and USD/CAD and short GBP/USD trades. The performance of the forecast so far has been positive:

Weekly Forecast 10th January 2016

Last week, we made no weekly forecasts.

This week, we again make no forecasts, as there were no strong counter-trend moves last week.

This week saw strength in the safety currencies such as the USD and JPY, but mostly the JPY, and also in the EUR and CHF. All the other major currencies were very weak, especially the commodity currencies of CAD, AUD and NZD. There is a strongly “risk off” global environment and stock markets are falling sharply.

Volatility was much higher compared to the previous week. Approximately 70% of the major and minor currency pairs changed in value by more than 1%. In fact it was the most volatile week overall in recent months. Volatility is likely to decrease this week, as there is far less economic data due.

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

Key Support/Resistance Levels for Popular Pairs

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:

GBP/USD

We had expected the level at 1.4799 might act as resistance, as it had acted previously as both support and resistance. Note how these “flipping” levels can work really well. The H1 chart below shows how during last Monday’s early London session, the price tried to rise above the level and failed, and then formed a bearish pin candle marked by the down arrow, which immediately broke down. This was also confluent with a rejection of a clearly defined bearish trend line as well as a psychologically important round number. This trade has given an excellent reward to risk ratio of more than 8:1 so far.