Trading Support and Resistance – 01 July 2018

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 will be long USD/JPY and long USD/SEK.

For the month of June, we forecasted that the best trade would be long USD/SEK. The final performance was positive, as shown below:

Currency Pair Forecast Direction Interest Rate Differential Final Performance
USD/SEK Long;

2.50% (2.00% – -0.50%)

1.53%

Weekly Forecast 1stJuly 2018

Last week, we forecasted that the USD/MXN currency pair would rise in value. Unfortunately, it fell in value by 0.50%.

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

This week has been dominated by relative strength in the Canadian Dollar and the Euro, and relative weakness in the New Zealand Dollar.

Volatility was higher last week, with one third of the major or minor currency pairs changing in value by more than 1%. Volatility is likely to be even higher over the coming week.

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:

Currency Pair Key Support / Resistance Levels
AUD/USD Support: 0.7362, 0.7309, 0.7260, 0.7230

Resistance: 0.7418, 0.7453, 0.7479, 0.7510

EUR/USD Support: 1.1666, 1.1613, 1.1596, 1.1496

Resistance: 1.1732, 1.1875, 1.1897, 1.1937

GBP/USD Support: 1.3183, 1.3129, 1.3105, 1.3057

Resistance: 1.3309, 1.3350, 1.3482, 1.3521

USD/JPY Support: 110.42, 110.00, 109.07, 108.05

Resistance: 110.85, 111.41, 111.75, 112.06

AUD/JPY Support: 81.30, 80.42, 79.99, 79.35

Resistance: 83.28, 83.65, 84.54, 84.83

EUR/JPY Support: 128.55, 127.11, 126.35, 125.60

Resistance: 129.56, 131.61, 132.57, 134.12

USD/CAD Support: 1.3047, 1.2826, 1.2793, 1.2750

Resistance: 1.3275, 1.3327, 1.3383, 1.3464

USD/CHF Support: 0.9887, 0.9827, 0.9679, 0.9500

Resistance: 0.9922, 0.9937, 0.9985, 1.0005

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 1.1629 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 right at the start of the London session last Monday, a time of day which is often good for entering trades in European currency pairs such as this one. The price immediately printed a bullish engulfing 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 just below 3 to 1.

USD/JPY

We had expected the level at 110.20 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 hit and rejected this level during the New York session last Tuesday, a time of day which is often good for entering trades in the USD/JPY currency pair. The price immediately printed a bearish inside candlestick which broke downwards 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 a little less than 3 to 1.

This article provided by NewsEdge.