Market Analysis for Week of 17 May 2015
Each week we like to send out our thoughts on the Forex market, not only to highlight potential trade set-ups for you to watch out for, but also to enhance your learning with some real-time market analysis.
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 May 2014
We forecasted that the pair most likely to change in value significantly during the month of May would be CAD/JPY in the long direction. The performance has been positive so far:
Weekly Forecast 17th May 2015
We made no forecast last week.
We make no forecast this week.
This week saw a continued strengthening of the EUR, and to a lesser extent the AUD, GBP and the CAD. Significantly, the USD appears to have undergone a major trend change from long to short, and has continued to weaken for another week.
There was an increase in volatility this week, with 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 April 2015 was short EUR/USD. The forecast performed very negatively, as shown below:
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 one of these key pairs last week off key support and resistance levels could have worked out:
AUD/JPY
We had expected the level at 94.56 might act as support, 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 during Monday’s Asian session the price fell to this support level, then reversed with a bearish engulfing candle, with this pattern marked at (1) in the chart. There was then an immediate break to the upside, marked by the up arrow, although it took half a day to get going in the desired direction. Profit could have been taken at the anticipated resistance level of 95.92, which worked with good accuracy as the next major resistance.
