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Saturday, October 12, 2013

5 Most Predictable Currency Pairs

Every currency pair has a particular story, characteristics, behavior or misbehavior on the technical charts. Certain pairs will make a big breakout across clear lines of support and resistance and will not look back.  Or, when they aren’t able to break through, they will slow down and back off. Those are the more predictable currency pairs. Other currency pairs are more messy.
The reactions of pairs tends to shift over time: some become more predictable and some lose their style.  Here is an updated list of the most predictable forex  pairs, ranked and characterized.
Update: Here are the 5 most predictable currency pairs.
  1. AUD/USD: The return of higher volatility and action in the markets makes the pair much more predictable. The pair respects uptrend and downtrend channels in a remarkable way, and also respects critical support and resistance lines. The pair’s predictability will likely be weaker in August when liquidity is lower, if no European news rocks the markets, but it is expected to shine during July and especially September, when there are is no liquidity shortage. In case of action in Europe during August, the Aussie will have the same behavior.
  2. EUR/USD: One of the side effects of the euro-crisis are a more predictable euro/dollar.After breaking in a certain direction, the pair reaches a peak (or a bottom), marks it, and following moves in the same directions tend to challenge the same line. As we’ve seen in previous summers, this pair doesn’t take a break. The incessant news flow promises action all the time, and as it is the world’s most popular pair, liquidity is abundant. The pair doesn’t get the first place, as a major European event could rock the boat too strongly (see how to trade the Greek euro-exit) Yet also in such a case, it will be interesting to see if the pair will mark the bottom and re-challenge it, as it tends to do.
  3. USD/JPY: This was traditionally a choppy and frustrating pair, but since the beginning of 2012, it is looking much better and even topped the list last time. The pair continues trading in clear ranges, often with double and triple tops. It is indifferent to the level of volatility. The pair behaves in a better manner when it is moving up.
  4. AUD/CAD: This may not be the most exciting currency pair, but it might be a good choice for range traders, especially in slower days. This cross of commodity currencies can settle in a range for quite some time.
  5. NZD/USD: The kiwi lost some of its mojo, but it still respects most old lines. Upon a breakout, resistance lines usually turn into support and vice versa. It came out first, and it could still rank higher, but not at the moment.
A few more notes:
GBP/USD had some good times, but it deteriorated later on, and dropped off the list.
Given the effective peg of the Swiss franc to the euro, USD/CHF moves in tandem with EUR/USD. Any franc crosses also move in tandem with their respective euro-pairs. So, unless the levee breaks, franc pairs are irrelevant.
EUR/GBP is very recently showing some positive signs, especially on the hourly chart, but the pair isn’t stable enough and could disappoint during the summer.

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