Market Analysis for Week of 08 February 2015

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 will 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 8^th February 2015

We made no forecasts last week.

This week, there was a strong counter-trend move in the CAD/JPY cross, so we are forecasting that its price will fall over the coming week.

This week saw a continuation of the recent pull-back against long-term strength in the USD. However this changed on Friday when better than expected NFP data was released. This saw the USD make gains against most other currencies, especially the JPY. There were strong positive performances by the GBP, NZD and CAD over the week, with the GBP looking to be the next-strongest currency after the USD, excluding CHF as it has been behaving strangely. Its trade-weighted value is consistently higher than every major look-back over the past year.

There was a drop in volatility this week, with just under half of the major and minor currency pairs fluctuating in value by more than 1%. However, the volatility was still relatively high.

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/USD

We had expected the level at 0.7857 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 bounce off this level twice towards the end of last week. However, there was not really any clear-cut price action that offered a safe low risk to high reward short entry. Sometimes waiting for good price action to confirm support or resistance means that you miss a trade, but over time it works out to be more profitable to wait for confirmation from the candlesticks.

(AUDUSDH4)