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 September 2018

For the month of September, we forecast that the best trade would be short AUD/USD. The performance to date is as follows:

Weekly Forecast September 16

Last week, we made 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.

Only 37% of the important currency pairs or crosses moved by more than 1% value over the past week. This volatility is relatively low, and we expect it to be unchanged next week.

This week has been dominated by relative strength in the Canadian Dollar, 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:

AUD/USD

We had expected the level at 0.7129 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 close to the Tokyo close last Tuesday, marked by the down arrow in the price chart below, forming a bearish outside and doji candlestick which broke down right away. This is often a great time to enter trades involving the Australian Dollar, and such candlesticks of a good size are often useful indicators of reversals when their wicks reject key levels. This trade was profitable, achieving a maximum positive reward to risk ratio of approximately 2 to 1.

USD/JPY

We had expected the level at 110.90 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 right at the Tokyo open on Monday, before forming a bullish pin candlestick marked by the up arrow in the price chart below which broke up right away. This is often a great time to enter trades in JPY currency pairs, and pin candlesticks of a good size are often useful indicators of reversals when their wicks reject key levels. This trade has been nicely profitable, achieving a maximum positive reward to risk ratio of more than 7 to 1 so far.