Trading Support and Resistance – AUD/USD, USD/CAD

Last week was dominated by relative strength in the Japanese Yen, and relative weakness in the US Dollar.

This week I will begin with my monthly and weekly Forex forecast of the currency pairs worth watching. The first part of my forecast is based upon my research of the past 20 years of Forex prices, which show that the following methodologies have all produced profitable results:

Let us 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:

For the month of July, I forecasted that the USD/JPY currency pair would rise in value.

The performance to date of this forecast is as follows:

Last week, I made no weekly forecast, as there were no unusually large counter-trend price movements, which is the basis of my weekly trading strategy. There were again no such price movements last week, so I again make no weekly forecast for the coming week.

Directional volatility in the Forex market increased last week with 30% of the most important currency pairs and crosses fluctuating over the week by more than 1%. Volatility will probably be even higher over the coming week, as the weekly schedule includes the release of US CPI (inflation) data, as well as the policy meetings of two central banks.

Last week was dominated by relative strength in the Japanese Yen, and relative weakness in the US Dollar.

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

I 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 can be monitored on the more popular currency pairs this week.

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

I had expected the level at $0.6637 might act as support in the AUD/USD currency pair last week, as it had acted previously as both support and resistance. Note how these “role reversal” levels can work well. The H1 price chart below shows how the price rejected this level during last Thursday’s London session (which can be a great time to enter Forex trades in Asian currency pairs such as this one) with a large pin bar, marked by the up arrow in the price chart below signaling the timing of this bullish rejection. This trade was profitable, giving a maximum reward-to-risk ratio of more than 1 to 1 based upon the size of the entry candlestick.

I had expected the level at $1.3383 might act as resistance in the USD/CAD currency pair last week, as it had acted previously as both support and resistance. Note how these “role reversal” levels can work well. The H1 price chart below shows how the price rejected this level not long after the start of last Friday’s London session (which can be a great time to enter Forex trades in important currency pairs such as this one) with a bearish pin bar, marked by the down arrow in the price chart below signaling the timing of this bearish rejection. This trade was profitable, giving a maximum reward-to-risk ratio of more than 5 to 1 based upon the size of the entry candlestick.

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