Market Analysis for Week of 22 March 2015

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 March 2014

We forecasted that the pair most likely to change in value significantly during the month of March would be EUR/USD. This pair has been the strongest mover over the previous 3 months, with the exception of the CHF. Recent strong moves in the CHF have looked abnormal and suspicious, therefore we refrained from forecasting a fall in EUR/CHF.

The monthly forecast has performed to date as follows:

Weekly Forecast 22^nd March 2015

There was no weekly forecast last week. There was a strong counter-trend move in the EUR/USD currency pair, therefore we predict that it is likely to fall in value over the forthcoming week.

This week saw a sharp reversal in the bullish USD trend following a disappointing statement on the U.S. Economy from the FOMC. Although the USD quickly recovered a lot of ground, it has remained significantly off the highs that it has recently been making against several currencies. Although the USD remains the most likely candidate as a strong currency for the time being, it is questionable as to whether this will continue. Almost every currency has moved against its longer-term trend this week, with the exception of the NZD which continued to strengthen slightly and appears to be on its way to becoming the next strongest currency after the USD.

There was a big increase in volatility this week, with more than two-thirds of the major and minor currency pairs fluctuating in value by more than 1%. Additionally, there was strong movements within the week that reached as high as 500 pips in a single day.

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

Previous Monthly Forecasts

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 one of these key pairs last week off key support and resistance levels could have worked out:

EUR/USD

We had expected the zone from 1.0987 to 1.1000 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 the price rose to hit this level during the late part of the New York session last Thursday, forming a huge pin, followed by a bearish engulfing candle, which could have been taken as a signal to go short. The problem here was that a very large stop loss would have been needed. In any case the trade would have given some positive pips, but should probably be exited from now if still open.

USD/JPY

We had expected the level at 119.50 might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work really well. Note how these “flipping” levels can work really well. The H4 chart below shows how the price rose to hit this level during the late part of the New York session last Thursday, forming a very large pin, followed by a bullish candle, which could have been taken as a signal to go long. The problem here was that a very large stop loss would have been needed. In any case the trade would have given some positive pips, but should probably be exited from now if still open.