Market Analysis for Week of 28 December 2014
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 December 2014
We forecasted that the pair most likely to change in value significantly during the month of December was the USD/JPY, which we expected would rise in value. This pair has been the strongest mover in the market over the previous 3 month and 6 month periods.
Weekly Forecast 28th December 2014
Average volatility this week was much lower than last week. This is not surprising as it was the week of the Christmas holiday. Less than one fifth of the major and minor pairs fluctuated in value by more than 1%.
The big picture this week shows a continuation of the established long-term strong USD and weak JPY trends. We are also seeing continuing weakness in the AUD and CAD and these are becoming established trends, although they are heavily influenced by the fall in commodities prices. Weakness in the EUR also continues.
You can trade our forecasts in a real or demo Forex brokerage account.
Previous Monthly Forecasts
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 1.5500 might act as support, as it had acted previously as support and is a key psychological number. The H4 chart below shows how there was an opportunity to go long off this level last week. The price dropped sharply to this level last Tuesday morning, finding some support from a moderately bullish candle marked at (1). The next candle was a bullish inside candle marked at (2). This broke the next bar and the price moved up fairly steadily.
EUR/USD
We had expected the level at 1.2175 might act as support, as it had acted previously as both resistance and support. Note how these “flipping” levels can work really well. The price dropped sharply to this level last Tuesday morning, finding some support in the area before moving up, then falling again. However as at least one candle closed below this level, there was no bullish price action justifying the trade.
