Trading Support and Resistance – AUD/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 June, I forecasted that the GBP/USD currency pair would rise in value.

The performance of this forecast so far is as follows:

Last week, I forecasted that the AUD/USD currency pair was slightly more likely than not to decline, while the EUR/NOK currency cross was likely to rise in value. Unfortunately, both calls were wrong: the AUD/USD currency pair rose by 1.93% while the EUR/NOK currency cross fell by 0.18%.

Directional volatility in the Forex market increased last week with 48% of the most important currency pairs and crosses fluctuating over the week by more than 1%. Volatility will probably be lower over the coming week, as the weekly schedule has considerably fewer items of high importance than it did last week.

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

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 $0.6895 might act as resistance 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 right at the end of last Friday’s Tokyo session (which can be a great time to enter Forex trades in Australasian currency pairs such as this one) with a small pin bar, marked by the down 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 2 to 1 so far based upon the size of the entry candlestick.

I had expected the level at ¥139.03 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 at the start of last Tuesday’s New York session (which can be a great time to enter trades in major Forex currency pairs like this one) with a large engulfing candlestick, 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 2 to 1 based upon the size of the entry candlestick structure.

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