The difference between success and failure in Forex trading is very likely to depend upon which currency pairs you choose to trade each week, and not on the exact trading methods you might use to determine trade entries and exits. Each week I am going to analyze fundamentals, sentiment and technical positions in order to determine which currency pairs are most likely to produce the easiest and most profitable trading opportunities over the next week. In some cases it will be trading the trend. In other cases it will be trading support and resistance levels during more ranging markets.

Big Picture 14th February 2016

Last week I highlighted long EUR/USD and long USD/CAD as the probable best trades of the week, as well as short USD/JPY. This worked out reasonably well as EUR/USD rose by 0.96%, USD/CAD fell by 0.38%, and USD/JPY fell by 3.09%, giving an average profit of 1.22% per highlighted pair.

Fundamental Analysis & Market Sentiment

At the moment, fundamental analysis is not going to be very useful, as we look to be at the end of major trends. Markets are currently being driven very strongly by sentiment which can shift from day to day and not by the macro environment as expressed through fundamental analysis. The only point worth making here is that over the past couple of weeks several central banks have begun making more dovish noises, which have sent many currencies plummeting from day to day.

An analysis of market sentiment is likely to be more fruitful. As the market becomes more fearful of a U.S. economic recession, the JPY, EUR and Gold tend to rise.

This week I cannot fully rely the long-term trends and instead want pick three pairs that have sentiment as well as trend behind them.

Technical Analysis

Gold

The daily chart below shows how this pair has shot upwards over the past few weeks, reversing the action of almost an entire year during which the price of the metal was very flat. The price has made a new 1 year high and broken up past the key level of $1119.18.

The rise has a lot to do with sentiment and fear. There is such strong momentum that pullbacks are quite likely to provide more long trading opportunities. However, note that the key psychological level at $1250 has already been hit, is confluent with logical resistance, and that the week closed below that level. There is likely to be support at $1232 and also further below at around $1200.

EUR/USD

The bullish breakout past the key resistance at 1.1000 continued this week, giving some nice long pips before finally falling from the area at around 1.1350. A look at a long-term chart will show that there is a lot of long-term resistance close to the 1.1400 zone. So as we have had quite a move up, it could be natural for this pair to slow down now that we have got close to this level.

Nevertheless the trend may still just continue. In any case, a pullback to prices below 1.1200, especially the key support at 1.1162, would be likely to give a good buying opportunity.

USD/JPY

The Japanese Yen has emerged as one of the strongest global currencies due to prevailing “risk-off” sentiment, and is now at a far stronger level against the USD than it was before the Bank of Japan’s negative rate move that occurred only two week ago!

The price broke down strongly past a very key level at around 116.00, making near 18 month lows and then breaking down again strongly after consolidating a little way above 114.00. The price was heading for a natural historical and psychological support at the very key round number of 110.00 but it seems the Bank of Japan intervened and bought this pair between 111.00 and 112.00.

We can expect that there will probably be another downwards thrust, and a return to the area at around 114.00 would be the logical resistance to look for before another bearish turn can happen.

The safest trades of the week are probably going to be long Gold and EUR/USD, and short USD/JPY.