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 16 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 December 2018

For the month of December, we forecast that the best trades would be short EUR/USD, short GBP/USD, and long USD/JPY.

The performance to date is as follows:

Weekly Forecast December 9  

Last week, we made no forecast as there were no strong counter-trend moves.

This week, we forecast that the EUR/AUD currency cross is likely to fall in value.

Less than 26% of the important currency pairs or crosses moved by more than 1% in value over the past week. This volatility is approximately constant, but we expect it is likely to increase this coming week.

This week has been dominated by relative strength in the Japanese Yen and relative weakness in the Australian Dollar.

Previous Monthly Forecasts

You can view the results of our previous monthly forecasts here.

Key Support/Resistance Levels for Popular Pairs

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

EUR/USD

We had expected the level at 1.1417 might act as resistance, as it had acted previously as both support and resistance. Note how these “flipping” levels can work well. The H1 chart below shows the how the price rejected this level not long after the open of the London session last Tuesday, marked by the down arrow in the price chart below, forming a bearish inside candlestick which broke down right away. This is often a great time of day to enter trades involving European currencies such as the Euro, and such candlesticks are often useful indicators of reversals when their wicks or the wick of the structure rejects key levels. This trade was profitable, achieving a maximum positive reward to risk ratio of more than 4 to 1.

USD/JPY

We had expected the level at 112.66 might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work well. The H1 chart below shows the how the price rejected this level during the New York session last Tuesday, marked by the up arrow in the price chart below, forming a bullish pin candlestick which broke up right away. This is often a great time of day to enter trades involving North American currencies such as the U.S. Dollar, and such candlesticks are often useful indicators of reversals when their wicks or the wick of the structure rejects key levels. This trade was slightly profitable, achieving a maximum positive reward to risk ratio of a little more than 1 to 1.