Trading Support and Resistance – GBP/USD, AUD/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:

I made no forecast for the month of August, because I did not see any trends in the Forex market which looked reliable enough.

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 rose last week with 48% of the most important currency pairs and crosses fluctuating over the week by more than 1%. Volatility is likely to be lower over the coming week, as we have little US data due, which tends to be the main driver of the Forex market these days.

Last week was dominated by relative strength in the US Dollar, and relative weakness in the New Zealand 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 $1.2685 might act as support in the GBP/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 right at the start of last Tuesday’s London/New York session overlap (which can be a great time to enter Forex trades in major currency pairs such as this one) with a doji candlestick, marked by the green up arrow in the price chart below signaling the timing of this bullish rejection. This trade was nicely profitable, giving a maximum reward-to-risk ratio of more than 4 to 1 based upon the size of the entry candlestick.

I had expected the level at ¥92.99 might act as support in the AUD/JPY currency cross 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 at the start of last Tuesday’s London/New York session overlap (which can be a great time to enter Forex trades) with a bullish engulfing bar, marked by the green up arrow in the price chart below signaling the timing of this bullish rejection. This trade was nicely profitable, giving a maximum reward-to-risk ratio of more than 3 to 1 based upon the size of the entry candlestick structure.

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