Market Analysis for Week of 15 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 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 15^th February 2015

Last week we forecasted the CAD/JPY cross would fall. The result was as follows:

This week mostly saw a continuation of the previous week, with the USD continuing to pull back, whilst the EUR, GBP and CAD all rising in value. The GBP is looking especially bullish and is the only currency apart from the USD showing long-term strength. The AUD and CHF continue to fall. The CHF looks very unpredictable, and there are some signs the long-term weakening of CAD might be slowing down considerably or even ending.

There was a very slight increase in volatility this week, with just over half of the major and minor currency pairs fluctuating in value by more 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:

USD/CAD

We had expected the level at 1.2650 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 New York session last Wednesday, and formed a pin candle on the H4 chart. The very next candle was a bearish inside candle. This was a pretty good price action signal to go short, and the price did in fact fall quite sharply from here. Traders who left the position open over the weekend should look to protect the risk or take partial profits at around 1.2400 to 1.2375 which is the nearest anticipated supportive area.