Market Analysis for Week of 05 April 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 April 2014
We forecast that the pair most likely to change in value significantly during the month of April will again be EUR/USD in the short direction. This pair has been the strongest mover over the previous 3 months, with the exception of the CHF. Recent strong moves in the CHF have looked abnormal and suspicious, therefore we have refrained from forecasting a fall in EUR/CHF.
The monthly forecast has performed to date as follows:
Weekly Forecast 5th April 2015
We made no weekly forecast last week. This week, we are forecasting a fall in the EUR/AUD cross.
This week saw more confusing movements, as the USD seemed to be resuming its bullish trend, before again changing tack at the end of the week. Apart from this, the EUR continues to strengthen notably. The CAD has also strengthened quite a lot. The only currencies that have been moving in-trend are really long NZD and short AUD.
There was a big continued decrease in volatility this week, with over three-quarters of the major and minor currency pairs fluctuating in value by less than 1%.
You can trade our forecasts in a real or demo Forex brokerage account.
Previous Monthly Forecasts
Our forecast for March 2015 was short EUR/USD. The forecast performed positively, as shown below:
Our forecast for February 2015 was long USD/CAD. The forecast did not perform positively, as shown below:
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 some of one key pairs last week off key support and resistance levels could have worked out:
We had expected the zone between 1.2740 and 1.2760 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 and exceed this level during the early part of the London session last Tuesday, forming several bullish candles marked at (1). This would normally suggest that the level had been exceeded and was no longer worthwhile as a possible short reversal. However, a very large bearish outside candle that closed near its low and reversed the previous 4 candle’s real bodies then formed, marked at (2), and precipitated a strong fall in the price of this pair. It would have been a great time to go short, although it was not strictly compliant with the levels methodology we outline here.