Market Analysis for Week of 30 November 2014
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 November 2014
We forecasted that the pair most likely to change in value significantly during the month of November would be USD/JPY, which we expected will rise in value. This pair has been the strongest mover in the market over the previous 3 month and 6 month periods. The forecast has performed extremely well as the pair continued to rise very strongly this month:
Weekly Forecast 30th November 2014
We made no weekly forecast last week.
There was one exceptionally strong counter-trend moves last week, in EUR/CAD. Therefore we forecast this week that EUR/CAD is likely to fall in value.
Average volatility this week was greater than it was last week. Approximately half of the major and minor pairs fluctuated in value by more than 1%.
The big picture this week showed a continuation of JPY weakness and USD strength, but the move is now more in the JPY than in the USD. The EUR was the strongest currency, while the CAD and AUD fell sharply.
Previous Monthly Forecasts
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 some of these key pairs last week off key support and resistance levels could have worked out:
AUD/USD
We had expected the level at 0.8700 might act as resistance, as it had acted previously as both resistance and support. Note how these “flipping” levels can work really well. The H4 chart below shows how very soon after the week opened, the price rose again to the 0.87 level, but moved down with a bearish piercing candlestick marked at (1). This candle broke to the downside on the very next candle. When the price reached 0.8500 near the end of the week, the chart printed a bullish inside bar. When this broke to the upside to the next candle at (2), it was an obvious signal to exit.
GBP/USD
We had expected the level at 1.5789 might act as resistance, as it had acted previously as both resistance and support. Note how these “flipping” levels can work really well. The H4 chart below shows how last Wednesday, the price rose up to this level, which was very well respected by the candlestick closes, and that the price was not really able to break above it. There was initially a small bearish engulfing candle shown at (1) in the chart, but this did not break down during the next candlestick. However, on the very next candle marked at (2), the price did break down, providing a short entry from which the price ended the week about 100 pips lower.
