Market Analysis for Week of 07 June 2015

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 June 2014

This month, we forecasted that the most likely pair to move directionally will be NZD/USD in the short direction. The performance of the forecast so far has been positive:

Weekly Forecast 7^th June 2015

Last week, we made no forecast.

This week, we again make no forecast, as we have no strong counter-trend moves in any currency crosses.

This week has seen continuing significant weakness in the JPY and NZD, significant relative strength in the USD, and a sudden strengthening in the EUR. That picture was reversed regarding the EUR, and at the end of the week the strongest currency looked to be the USD. There is no other real strength anywhere else other than the USD and EUR.

There was a decrease in volatility this week, with only half of the major and minor currency pairs fluctuating in value by more than 1%.

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

Previous Monthly Forecasts

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 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 1.2561 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 during Monday’s New York session the price rose to this resistance level, then reversed strongly with a nice bearish inside candle that closed very close to its low, with this pattern marked at (1) in the chart. Profit on a short trade entered there could have been taken at the predicted support of 1.2400, which worked with reasonable accuracy as the next major resistance.

GBP/USD

We had expected the level at 1.5402 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 during Thursday’s London session the price rose to this resistance level, then reversed strongly with a nice bearish pin bar that closed reasonably close to its low, with this pattern marked at (1) in the chart. Although we have not yet hit the next anticipated support level of 1.5164, we did get reasonably close to it, so it would probably be wise to protect profits or take partial profit.

That’s all until next week. Our next newsletter will be coming to you on Sunday 14^th June.

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