Trading Support and Resistance – 21 October 2018

By Adam Lemon

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 October 2018

For the month of October, we forecasted that the best trade will be long USD/JPY. The performance to date is as follows:

Currency Pair Forecast Direction Interest Rate Differential Performance to Date
USD/JPY Long ↑ 2.35% (2.25% – -0.10%) -1.03%

Weekly Forecast21st October 2018

Last week, we made no weekly forecast.

We make no weekly forecast this week, as there were no strong counter-trend price movements last week.

Fewer than 19% of the important currency pairs or crosses moved by more than 1% in value over the past week. This volatility is low, and we expect it to be similar over the coming week.

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

You can trade our forecasts in a real or demo Forex brokerage account.

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:

Currency Pair Key Support / Resistance Levels
AUD/USD Support: 0.7089, 0.6992, 0.6940, 0.6827

Resistance: 0.7203, 0.7238, 0.7321, 0.7382

EUR/USD Support: 1.1480, 1.1444, 1.1400, 1.1353

Resistance: 1.1527, 1.1547, 1.1572, 1.1633

GBP/USD Support: 1.3006, 1.2894, 1.2816, 1.2780

Resistance: 1.3082, 1.3143, 1.3162, 1.3350

USD/JPY Support: 111.94, 111.66, 111.43, 111.31

Resistance: 112.83, 113.56, 114.18, 114.74

AUD/JPY Support: 79.45, 79.00, 78.50, 78.19

Resistance: 80.79, 82.60, 82.81, 83.45

EUR/JPY Support: 129.13, 127.92, 126.93, 125.65

Resistance: 130.60, 134.12, 136.89, 137.56

USD/CAD Support: 1.3087, 1.3003, 1.2952, 1.2884

Resistance: 1.3118, 1.3281, 1.3327, 1.3383

USD/CHF Support: 0.9918, 0.9898, 0.9848, 0.9823

Resistance: 0.9982, 1.0010, 1.0111, 1.0150

Let’s see how trading one of these key pairs last week off key support and resistance levels could have worked out:

EUR/USD

We had expected the level at 1.1444 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 shortly after the London open last Friday, marked by the up arrow in the price chart below, forming a bullish doji inside candlestick which broke up right away. This is often a great time to enter trades involving European currencies such as the Euro, and such candlesticks are often useful indicators of reversals when their wicks or the wick of the structure rejects key levels shortly after sessions begin. This trade has been nicely profitable so far, despite its counter-trend nature, achieving a maximum positive reward to risk ratio so far of almost 3 to 1.

This article provided by NewsEdge.