Market Analysis for Week of 29 March 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 March 2014

We forecasted that the pair most likely to change in value significantly during the month of March would be EUR/USD. 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 refrained from forecasting a fall in EUR/CHF.

The monthly forecast has performed to date as follows:

Weekly Forecast 29^th March 2015

Last week we forecast a fall in the EUR/USD pair. Unfortunately, the pair actually rose somewhat, by 0.66%. There were no strong counter-trend moves last week, so we make no forecast for this coming week.

This week saw some confusing movements, as the USD continued to retrace away from its strongly bullish trend, before again bouncing back at the end of the week. Apart from this, the JPY continues to strengthen. The most well-defined movements this week were the continuing fall in the GBP and rise in the CHF.

There was a big decrease in volatility this week, with well over half 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 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 these key pairs last week off key support and resistance levels could have worked out:

AUD/JPY

We had expected the level at 94.50 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 late part of the New York session last Monday, forming a very bearish candle closing hard on its low which was both a pin and an inside candle, which could have been taken as a signal to go short at the first down arrow. The problem here was that if the stop loss had been placed just beyond the initial high, the trade would have been stopped out at a loss just a few candles later. It can be psychologically difficult to re-enter the same trade just after a loss, but here there was another very bearish inside candle just after the 94.50 level was retested, which could have led to a very nicely profitable short trade, with entry marked at the second down arrow in the chart below.

EUR/USD

We had expected the zone from 1.0987 to 1.1035 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 early part of the London session last Tuesday, forming a doji candle, which could have been taken as a signal to go short at the first down arrow. The problem here was that if the stop loss had been placed just beyond the initial high, the trade would have been stopped out at a loss two days later. It can be psychologically difficult to re-enter the same trade just after a loss, but here there was a bearish engulfing candle just after the top of the zone at 1.1035 was tested, which could have led to a profitable short trade, with entry marked at the second down arrow in the chart below. The price did reach close to support at 1.0770, so it would probably be wise to protect profits by some method for any short trade that was taken.