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 24th January 2016
Last week I highlighted short AUD/USD and GBP/USD, as well as long USD/CAD as the probable best trades of the week. This worked did not work out very well as each of these three pairs closed up in the opposite direction.
For this coming week, in spite of this fairly strong counter-trend move, I have to remain with the long-term trends where the candlestick action of recent days does not look as if it has a very strong continuation due for the counter-trend movement. Therefore I would look to be short AUD/USD and also GBP/USD. However looking at the daily charts for USD/JPY and USD/CAD makes me nervous as I can see these pairs as being quite likely to continue moving in the direction against the trend at least for a little longer.
Fundamental Analysis & Market Sentiment
The strongest currency is the JPY, but the USD is also strong. The JPY's strength comes from its reputation as a safety currency rather than from underlying Japanese economic fundamentals. Regarding the USD, the fundamental data could be stronger, however there have been no bad surprises and we now seem to be set on a course by the Federal Reserve of gradual rate rises. The position technically for the USD also looks quite strong. The currency is now trading higher than it was 6 months ago against every major global currency except the JPY.
Weaker currencies are very clear: GBP and AUD.
British fundamentals are also looking dubious and the Bank of England is seen as unlikely to raise rates any time soon.
Australia is hard hit by Chinese problems and in fact as the Chinese stock market crashes, it falls faster than anything else, mainly due to the facts that there is a large volume of trade between Australia and China and also because Australia exports a lot of commodities, to China in particular. However now we are seeing a meaningful recovery in global risk sentiment, stocks and the Chinese market in particular, Australian fundamentals may begin to look stronger or at least will be backed by better sentiment.
Technical Analysis
GBP/USD
The price has been in a clear, long-term downwards trend, making new 5 year lows and breaking through support. In fact the pair made a new 5 year lows last week and was not very far from making a 6 year low. However at the end of the week there was strong buying at the anticipated support level of 1.4086 which saw the price break up through some resistance and close up for the week, forming a bullish doji candle. It is too early to say we have reached a bottom, but this may be a warning sign that the price is not going to make any more new lows for a while. Nevertheless, the trend here is strong, and the price began to fall again on Friday after touching key resistance at 1.4350.
AUD/USD
The weekly chart below shows how the price was unable to make a new low this week, after making a new 5 year low during the previous week. The week closed up quite strongly, forming a bullish engulfing candlestick. However the price was unable to make a new weekly high and fell on Friday, suggesting it might not be going any higher for the time being.
The safest trades of the week are probably going to be short GBP/USD and AUD/USD.
