Trading Support and Resistance – EUR/USD, USD/JPY

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 strong counter-trend price movements.

I make no forecast again this week, as this situation remains unchanged.

Directional volatility in the Forex market declined last week with only 30% of the most important currency pairs and crosses fluctuating over the week by more than 1%. Volatility may be a little higher over the coming week, as we will see the start of a new month, as well as a couple of major data releases.

Last week was dominated by relative strength in the Japanese Yen, and relative weakness in the Australian 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 $1.1150 might act as resistance in the EUR/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 major currency pairs such as this one) with a pin bar, marked by the red down arrow in the price chart below signaling the timing of this bearish rejection. This trade was very profitable, giving a maximum reward-to-risk ratio of more than 11 to 1 based upon the size of the entry candlestick.

I had expected the level at ¥138.76 might act as support in the USD/JPY 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 right towards the end of last Friday’s Tokyo session (which can be a great time to enter Forex trades in major currency pairs involving the Japanese Yen, such as this one) with a bullish inside bar, marked by the green 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 approximately 1.5 to 1 based upon the size of the entry candlestick structure.

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