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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.

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Monthly Forecast for January 2024

For the month of January, I forecasted that the EUR/USD duo would rise in value, and that the USD/JPY currency pair would fall in value. The performance of this forecast so far is:

Weekly Forecast for Sunday, Jan. 7, 2024

Last week, I made no weekly forecast, as there were no unusually strong counter-trend price movements present in the market. This week, I forecast that the GBP/JPY currency cross will fall in value.

Directional volatility in the Forex market increased last week, as 48% of the most important currency pairs fluctuated over the trading period by more than 1%. Volatility is likely to increase further over the coming week, as there will be a release of highly important US inflation data.

Last week was dominated by relative strength in the US dollar, and relative weakness was seen in 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 two of these key pairs last week off of key support and resistance levels could have worked out.

USD/CAD

I had expected the level at $1.3232 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 Tuesday’s London session with an engulfing candlestick, marked by the upward arrow, signaling the timing of this bullish rejection. This trade was nicely profitable, giving a maximum reward-to-risk ratio of more than 4 to 1 based upon the size of the entry candlestick structure.

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AUD/USD

I had similarly expected that the level at $0.6671 might act as support in the AUD/USD currency pair last week, as it had also acted previously as both support and resistance.

The H1 price chart below shows how the price rejected this level right at the start of last Friday’s New York session with a very large pin bar, marked by the upward arrow, signaling the timing of this bullish rejection. This trade has also been profitable, giving a maximum reward-to-risk ratio so far of more than 1 to 1 based upon the size of the entry candlestick.

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