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 11 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 February 2016
This month, we forecasted that the USD will rise against the GBP, CHF and EUR, suggesting long USD/CHF and short EUR/USD trades. The performance of the forecast overall so far has been negative:
Weekly Forecast 14th February 2016
We made no forecast last week.
We make no forecast again this week, as there are no pronounced counter-trend movements.
This week has seen strength in the Japanese Yen, as well as in the Swiss Franc, Canadian Dollar and Euro to a lesser much extent. It is hard to say what is most likely to happen next as the market is in a major flux and we may start to see some big trend reversals with long EUR/USD and short USD/JPY starting to look attractive.
Volatility was considerably lower than the previous week, with about two thirds of the major and minor currency pairs changing in value by less than 1%. Volatility is likely to be higher this week as there are more high-impact news events scheduled.
You can trade our forecasts in a real or demo Forex brokerage account.
Key Support/Resistance Levels for Popular Pairs
At the FX Academy, 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:
