By Areena FxThis week I will begin with my monthly and weekly Forex forecast of the currency pairs worth watching. The first part of my forecast is based upon my research of the past 20 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 6 months.
- Trading against very strong weekly counter-trend movements by currency pairs made during the previous week.
- Carry Trade: Buying currencies with high interest rates and selling currencies with low interest rates.
Let us 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 2024
For December, I made no forecast, as although the US Dollar was making long-term lows, the move was over-extended at the start of the month so was liable to retrace.
For January, I forecast that the EUR/USD will rise in value and that the USD/JPY currency pair will fall in value.
Weekly Forecast 1st January 2024
Last week, I made no weekly forecast, as there were no unusually strong counter-trend price movements.
This week, I again made no forecast as there were no unusually strong counter-trend price movements in the Forex market.
Directional volatility in the Forex market decreased strongly last week with only 19% of the most important currency pairs fluctuating over the week by more than 1%. Volatility is likely to increase over the coming week, as the first trading week of a new year is likely to be volatile.
Last week was dominated by relative strength in the Swiss Franc, and relative weakness in the US Dollar.
You can trade my forecasts in a real or demo Forex brokerage account.
Key Support/Resistance Levels for Popular Pairs
I 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 can be monitored on the more popular currency pairs this week.
Let us see how trading one of these key pairs last week off key support and resistance levels could have worked out:
USD/JPY
I had expected the level at ¥140.25 might act as support in the USD/JPY currency pair last week, as it had acted previously as both support and resistance. Note how these “role reversal” levels can work well. The H1 price chart below shows how the price rejected this level right at the start of last Thursday’s London/New York overlap session with a bullish pin bar, marked by the up arrow in the price chart below signaling the timing of this bullish rejection. This trade was profitable so far, giving a maximum reward to risk ratio of more than 1 to 1 based upon the size of the entry candlestick.
