Dear Friend,

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 August 2014

Last month, we forecasted that the most likely pair to move directionally would be NZD/USD in the short direction. The performance of the forecast was positive:

This month, we forecast that the most likely pair to move directionally will be AUD/USD in the short direction.

Weekly Forecast 2^nd August 2015 

Last week, we made no forecast, apart from predicting that if the USD strengthened it would be most likely to do so against the commodity currencies, and this did happen.

This week, we again make no forecast, as there were simply no large counter-trend movements at all.

The past week was weak and mixed, with the market doing little, and bouncing straight back after surprising USD data caused a relatively large move on Friday.

This week, there will be a focus on the USD and the AUD, with the GBP and JPY also coming more into view, as there are Central Bank actions due regarding all four.

There was big a decrease in volatility this week, with approximately 90% of the major and minor currency pairs changing 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 June 2015 was short NZD/USD. The forecast performed positively, as shown below:

Our forecast for May 2015 was long CAD/JPY. The forecast performed positively, as shown below:

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 two of these key pairs last week off key support and resistance levels could have worked out:

GBP/USD

We had expected the level at 1.5673 might act as resistance, as it had acted previously as both support and resistance. Note how these “flipping” levels can work really well. The H1 chart below shows how during Wednesday’s New York session the price slightly penetrated this level, then reversed forming a bearish engulfing candle that then broke to the downside, with this pattern marked at (1) in the chart, giving a potential profitable entry. A short trade taken at the break of that engulfing candle with the high as a stop loss would have achieved a profitable reward to risk ratio of more than 2:1 so far.

USD/CHF

We had expected the level at 0.9537 might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work really well. The H1 chart below shows how early in Monday ’s London session the price fell strongly to this support level, then found support with an imperfect but bullish piercing candle, with this pattern marked at (1) in the chart. A long trade taken at the break of that candle with the low as a stop loss would have achieved a maximum profitable reward to risk ratio of more than 3:1 before the close of the week.

That’s all until next week. Our next newsletter will be coming to you on Sunday 9^th August.

You can trade our forecasts in a real or demo Forex brokerage account.

Adam Lemon
Chief Instructor
www.fxacademy.com