Trading Support and Resistance – 08 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 forecasted that the best trades would be long USD/JPY and long USD/SEK. The performance so far is as follows:

Currency Pair Forecast Direction Interest Rate Differential Performance to Date
USD/SEK Long

2.50% (2.00% – -0.50%)

-2.34%

USD/JPY Long

2.10% (2.00% – -0.10%)

-0.20%

Weekly Forecast 8th July 2018

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

This week, we again make no forecast, as we do not believe the USD will bounce back over the coming week.

This week has been dominated by relative strength in the New Zealand Dollar, and relative weakness in the Swiss Franc, but the amounts are so small as to be relatively meaningless.

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: 0.7418, 0.7397, 0.7362, 0.7309

Resistance: 0.7453, 0.7479, 0.7510, 0.7580

EUR/USD Support: 1.1732, 1.1680, 1.1647, 1.1613

Resistance: 1.1875, 1.1897, 1.1937, 1.2060

GBP/USD Support: 1.3145, 1.3105, 1.3057, 1.3000

Resistance: 1.3309, 1.3350, 1.3482, 1.3521

USD/JPY Support: 110.00, 109.07, 108.05, 107.49

Resistance: 110.55, 110.79, 111.41, 111.75

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

Resistance: 83.28, 83.65, 84.54, 84.83

EUR/JPY Support: 129.65, 128.55, 127.11, 126.35

Resistance: 131.61, 132.57, 134.12, 136.89

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

Resistance: 1.3182, 1.3275, 1.3327, 1.3383

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

Resistance: 0.9985, 1.0005, 1.0111, 1.0150

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 1.1596 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 just before the London close last Monday. The price immediately printed a bullish pin candlestick which broke upwards 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 7 to 1.

EUR/JPY

We had expected the level at 129.56 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 just after the London Open last Tuesday, a time of day which is often good for entering trades, especially involving a European currency. The price immediately printed a bearish engulfing 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 of approximately 3 to 1.

This article provided by NewsEdge.