Quantitative Forecast

Academic studies have shown that the most reliable way to determine future price movements from past price movements, is by use of momentum.

In the Forex market, a momentum study is best applied to the four major Forex currency pairs by simply checking whether the weekly close is above or below the weekly close 13 weeks ago.

If the price is higher, the statistical edge is in trading that pair long.

If the price is lower, the statistical edge is in trading that pair short.

On this basis, the quantitative momentum forecast for the edge during the coming week is as follows:

Technical Forecast

The question as to whether an experienced chart-reading technical analyst can outperform a simple momentum model warrants a live experiment. Looking at the weekly charts for each of the four major pairs, I will try to determine the line of least resistance, and forecast the directional edge using my own technical analysis.

On this basis, my technical analysis forecast for the edge during the coming week is as follows:

Last week saw, as I expected, a strengthening in the USD against all four currencies, most strongly against the CHF which is currently quite weak. I expect next week to be more of a mixed picture, with the EUR probably unable to really move down and with the GBP more likely to fall against the USD rather than rise. Otherwise, my technical forecast agrees with the quantitative forecast.

Summary

This week, the quantitative and technical forecasts differ on half of the pairs.

Next week, we will review how these forecasts performed.

Previous Forecasts

These forecasts have been running for 34 weeks.

Last week, the quantitative and technical forecasts were identical. The results were as follows:

The running totals of the forecasts after 34 weeks so far are as follows:

Both forecasts have performed negatively to date, due mainly to the very sharp and historically unprecedented counter-trend moves in the CHF over recent months. Excluding the USD/CHF pair the quantitative forecast has performed positively.