The difference between success and failure in Forex trading is very likely to depend upon which currency pairs you choose to trade each week, and not on the exact trading methods you might use to determine trade entries and exits. Each week I am going to analyze fundamentals, sentiment and technical positions in order to determine which currency pairs are most likely to produce the easiest and most profitable trading opportunities over the next week. In some cases it will be trading the trend. In other cases it will be trading support and resistance levels during more ranging markets.
Big Picture 11th November 2018
In my previous piece last week, I forecasted that the best trades would be short of the EUR/USD and long of Silver (XAG/USD) if there were a daily close above $15. Silver never closed above $15, but the EUR/USD currency pair fell by 0.46% which would have been a winning trade.
Last week saw a rise in the relative value of the Australian Dollar, and a fall in the relative value of the Japanese Yen.
Last week’s Forex market was dominated by very positive New Zealand economic data, as well as a slightly hawkish FOMC release which boosted the U.S. Dollar. The bullish USD trend is surviving.
This week is likely to be dominated by forthcoming U.S. inflation data.
Fundamental Analysis & Market Sentiment
Fundamental analysis still tends to support the U.S. Dollar, as American economic fundamentals continue to look strong. Sentiment seems to be still in favor of the U.S. Dollar as despite quite strong recent selloffs in the stock market, the economic fundamentals are still seen as strong, although there is perhaps a greater feeling that the continuing rate hikes are going to weigh on growth sooner or later. Fundamentals remain bearish on the Japanese Yen, but this currency can still benefit from safe-haven “risk off” money flow.
The week ahead in the market is likely to be dominated by the U.S. Dollar and British Pound, and to a lesser extent the Australian Dollar.
U.S. Dollar Index
The weekly price chart below shows that after last week’s bullish candlestick, the price remained mostly unchanged over this week, printing an inconclusive semi-doji candlestick, which also rejected the resistance level at 12291. The price remains within a multi-week consolidation between support and resistance and I have no strong confidence as to short-term direction, although the edge is still technically in line with the long-term bullish trend, which remains intact. Another bullish sign is that we have seen higher prices over each of the past three weeks.
The weekly chart below shows a strengthening downwards movement, and despite the relatively low volatility here, this pair is certainly in a downwards trend. We have a bearish candlestick closing near its low with a large upper wick, and the close is the lowest weekly close that we have seen for a long time. There is an edge here in favor of short trades, although bears should beware of the long-term double bottom at the lows.
The weekly chart below shows that after a few months of going sideways, the price just made its highest close in 20 weeks, which is a clearly bullish sign. We have just seen a very bullish candlestick close near its high after basing off a support level, and there is some room left before the price will run into any resistance level if it continues to rise. These are all bullish signs suggesting there is a long trade edge here now.
Gold has fallen quite sharply after initially threatening to break out of its range. This week has been very bearish, with a close right at the weekly low which is also a 20-day breakout on the short side. Even better, there is compressed volatility, with the range of daily closes over the last 20 days representing less than 2% of the price. Typically, we should expect a fairly strong downwards movement as a continuation over the coming week. It is true that Silver is weaker, and could also be traded short, yet Gold probably has more room to fall.
Bearish on the EUR/USD currency pair and Gold in U.S. Dollar terms, bullish on USD/CAD.