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 July 2018

For the month of July, we forecast that the best trades would be long USD/JPY and long USD/SEK. The performance so far is as follows:

Weekly Forecast  July 15

Last week, we make no forecasts, as there were no strong counter-trend movements. This week, we again make no forecast, as there were again no strong counter-trend movements.

This week has been dominated by relative strength in the Australian and U.S. Dollars, and relative weakness in the Japanese Yen.

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:

GBP/USD

We had expected the level at 1.3350 might act as resistance, and that the level at 1.3105 might act as support, as both 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 initially hit and rejected this level just after the London open last Monday. The price immediately printed a bearish pin candlestick which broke downwards right away, which often signifies a good reversal is about to take place. This trade has been profitable, achieving a maximum positive reward to risk ratio so far of more than 5 to 1. The same thing happened on Friday, with a nice long trade setting up following a bullish rejection of the support level at 1.3105.

AUD/USD

We had expected the level at 0.7362 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 hit and rejected this level just before the Asian Open last Thursday, a time of day which is often good for entering trades in currency pairs with Asian time zone business hours such as the Australian Dollar. The price immediately printed a bullish inside candlestick which broke upwards right away, which often signifies a good reversal is about to take place. This trade was profitable, achieving a maximum positive reward to risk ratio so far greater than 8 to 1.