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 January 2014

We forecast that the pair most likely to change in value significantly during the month of January is the USD/JPY. This pair has been the strongest mover in the market over the previous 3 month and 6 month periods.

Weekly Forecast 4th January 2015

Average volatility this week was a little higher than last week. This is not surprising as last week was the week of the Christmas holiday. Just over half of the major and minor pairs fluctuated in value by more than 1%. We take no position this week, as there were no especially strong counter-trend moves last week.

The big picture this week shows a continuation of the established long-term strong USD trend. The JPY is strengthening slightly so it might be that the long-term JPY weakness is slowing. We are now seeing greater weakness in the CAD and AUD, as well as in the EUR, CHF and GBP to a lesser extent and these are becoming established trends.

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

Our forecast for November 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:

GBP/USD

We had expected the level at 1.5606 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 there was an opportunity to go short off this level last week. The price rose to this level during the London session last Wednesday morning, breaking the level temporarily but then retreating rapidly as New York opened to form a bearish pin bar. This broke down on the next bar and the price moved down steadily before falling fairly spectacularly on Friday. If profit had been taken at our anticipated support level of 1.5500, then 73 pips profit would have been available from a risk of about 50 pips.

AUD/USD

We had expected the zone from 0.8200 to 0.8240 might act as resistance, as it had acted previously as both resistance and support. Note how these “flipping” levels can work really well. The H4 chart below shows how there was an opportunity to go short off this level last week. The price rose into the zone during the London session last Wednesday morning, breaking the level temporarily but then retreating rapidly as New York opened to form a bearish “piercing” candle (one that closes past the previous candle’s halfway mark after making a new high or low), marked at 1 on the chart below. Although this broke down on the next bar, it was a weak signal in itself. It was only with the subsequent creation of a bearish pin bar marked at 2 after a failed attempt to rise, that a really obvious short presented itself. If profit had been taken at our anticipated support level of 0.8081, then 100 pips profit would have been available from a risk of about 30 pips.

That’s all until next week. Our next newsletter will be coming to you on Monday 12th January.

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

Adam Lemon
Chief Instructor
www.fxacademy.com