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 September 2016
This month we forecasted that the highest-probability trade will be long NZD/USD. The performance so far is slightly positive, as follows:
Weekly Forecast 18th September 2016
Last week, we made no forecast.
This week, we make no forecast, as there were no strong counter-trend moves.
This week has been dominated again by strength in the Japanese Yen, and weakness in the British Pound.
Volatility was slightly higher than it was during the previous week, with approximately 40% of the major and minor currency pairs changing in value by more than 1%. Volatility is likely to be much greater over this coming week, which will be dominated by central bank actions from the U.S. Federal Reserve, the Bank of Japan, and the Reserve Banks of Australia and New Zealand.
Key Support/Resistance Levels for Popular Pairs
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:
