Forex Forecast: Pairs in Focus

By: DailyForex.com

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 29th April 2018

In my previous piece last week, I forecasted that the best trade would be long WTI Crude Oil. After initially rising, WTI Crude Oil fell slightly to end the week down by 0.21%.

Last week saw a resurgence in the U.S. Dollar, while almost every other currency fell in their relatively values against the greenback. The U.S. Dollar Index made a new 4-month high price, while the U.S. stock market (represented by the S&P 500 Index) is showing a little life but remains trapped between a bearish trend line and the 200-day moving average. Crude Oil has continued to rise to new long-term high prices, making a new 3-year high.

The major economic data releases last week were U.K. GDP which came in significantly weaker than expected at 0.1%, while U.S. Advance GDP data came in a little higher than expected, at 2.3%. The major political drivers are the prospect of peace in the Korean peninsula, and tension over what will happen regarding the Iran deal as U.S. sanctions policy against Iran comes up for renewal on 12th May.

Fundamental Analysis & Market Sentiment

Fundamental analysis tends to support the U.S. Dollar; and this seems to be increasingly supported by sentiment. The 10-year yield remains close to 3% but GDP looks strong. Sentiment has turned sour on the British Pound as new data shows its economy is barely growing. Monthly policy events from the European Central Bank and the Bank of Japan last week had little impact.

Technical Analysis

U.S. Dollar Index

The daily price chart below shows a reasonably strong bullish move was made over the week, with the Index making a new 4-month high price and closing between its price levels from 3 months and 6 months ago, invalidating the long-term bearish trend. This is a major technical change. The price looks likely to range, or at least move unpredictably, as the daily pin candle on Friday rejected both a horizontal resistance level at 11837 and a long-term bearish trend line. However, it is likely that the level below at 11741 will act as strong support.

GBP/USD

This pair has been in a long-term bullish trend for a long time, but has fallen strongly for a second consecutive week, closing very near its low, and now shows a bearish 3-month trend. Although the bullish trend has been very persistent, the bearish momentum here, coupled with U.S. Dollar strength and poo British GDP figures which are hitting the Pound, make it likely that this pair will fall over the coming week.

USD/SEK

This pair made a new 4-month high, as the Swedish Rijksbank announced that its record low interest rate of -0.50% would be maintained. Although the weekly candlestick, as shown in the chart below, has a relatively large upper wick, it looks likely to rise at least a little further over the week, if the Dollar strength persists.

S&P 500 Index

I just wanted to take a quick look at the U.S. stock market’s major index, so we can see that the stock market is still looking dangerous and possibly bearish. The moving average shown in the daily chart below is the 200-day simple moving average. This is arguably acting as support, along with a bullish trend line which is drawn just below it, but the level above at 2678 seems to be acting as resistance. We can also draw a medium-term bearish trend line at the key swing highs which continues to hold. A breakout above the upper trend line would be a bullish sign for stocks. Conversely, a break down below the support is likely to signal the start of a bear market.