Trading Support and Resistance – USD/CHF, USD/CAD


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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:

Currency Price Changes and Interest Rates

For the month of December, I made no forecast, as although the US Dollar was making long-term lows, the move was over-extended at the start of the month so was liable to retrace. This was probably a good call, as Dollar direction has been volatile so far this month.

Last week, I made no weekly forecast, as there were no unusually strong counter trend price movements.

This week, I again make no forecast as there were no unusually strong counter trend price movements in the Forex market.

Directional volatility in the Forex market increased last week with 56% of the most important currency pairs fluctuating over the week by more than 1%. Volatility is likely to decrease over the coming week, as this is typically a quiet holiday period.

Last week was dominated by relative strength in the Australian Dollar, and relative weakness in the US Dollar and British Pound.

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.

Key Support and Resistance Levels

Let us see how trading two of these key pairs last week off key support and resistance levels could have worked out:

USD/CHF

I had expected the level at $0.8712 might act as resistance in the USD/CHF 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 Monday’s Tokyo session (the weekly open can be a good time to enter trades in any currency pair) with a near-pin bar followed by an engulfing candlestick, marked by the down arrow in the price chart below signaling the timing of this bearish rejection. This trade has been extremely profitable so far, giving a maximum reward to risk ratio of more than 12 to 1 based upon the size of the entry candlestick structure.

USD/CHF Hourly Price Chart

USD/CAD

I had expected the level at $1.3404 might act as resistance in the USD/CAD 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 Monday’s London session (which can be a good time to enter trades in any important currency pair) with a bearish pin bar, marked by the down arrow in the price chart below signaling the timing of this bearish rejection. This trade has been extremely profitable so far, giving a maximum reward to risk ratio of more than 9 to 1 based upon the size of the entry candlestick.

USD/CAD Hourly Price Chart

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