Market Analysis for Week of 07 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:

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 forecast that the pair most likely to change in value significantly during the month of December will be USD/JPY, which we expect will rise in value. This pair has been the strongest mover in the market over the previous 3 month and 6 month periods.

Weekly Forecast 7th December 2014

Last week we forecast that the EUR/CAD currency cross was likely to fall in value. The forecast was correct, as the cross fell by 1.44% from open to close last week.

There were no exceptionally strong counter-trend moves last week, so we make no weekly forecast for this week.

Average volatility this week was about the same as last week. Approximately half of the major and minor pairs fluctuated in value by more than 1%.

The big picture this week showed a continuation of JPY weakness and USD strength, with the USD resuming its upwards trend after a pause in momentum. The GBP has been showing some relative strength, with weakness continuing in the AUD and the JPY.

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:

USD/CAD

We had expected the level at 1.1325 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 towards the end of last Monday’s New York session, the downwards movement ran out of steam, printing two successive inside candles at this level of anticipated support. The price rose during the week, eventually breaking the previous week’s high on Friday, from which it fell significantly. This indicates that a possible double top has formed at 1.1458, signifying that it is time to consider exiting from this long trade.



USD/JPY

We had expected the level at 120.00 might act as resistance, as it is a key psychological number. The H4 chart below shows how last Thursday, the price finally hit this level and fell quite sharply, forming a large doji candle marked at (1). This was followed initially by a small inside candle marked at (2), but the low of this candle did not break, giving no price action trigger to enter a short trade. This was fortunate, as the price then broke up past 120.00 very strongly.

 
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