Where Do The Major Forex Pairs Go From Here?

With the first day of fall around the corner, most markets are expecting trading activity to pick up as the summer doldrums fade away. The back-from-summer-vacation uptick in activity is a well-known phenomenon across Wall Street, as volume and volatility typically decline during the summer months.

But that hasn’t been the case this year in the forex markets. And you have geopolitics to thank for that.

“This was probably the most volatile August I’ve seen in 10 years,” said Greg Firman, founder of forex trading firm E-Trade FX and VantagePoint Software Power User. “Normally in August it’s like watching paint dry from like August 10th on, but Trump’s really stirring things up.”

With that in mind, we thought we’d look at the biggest forex pairs and see where they’re headed using predictive analytics from VantagePoint, the same software Firman uses in his trading. VantagePoint is capable of predicting trend changes 1-3 days in advance with up to 86 percent accuracy.

EUR/USD

The Euro/US Dollar pair, the most popular currency pair traded, has cooled off a bit in September after a strong uptrend in August, as the chart below shows. But the pair looks to have regained some momentum in the last week.

VantagePoint’s short-term predicted moving average (blue line) and 10-day moving average (black line) crossed over on August 16, indicating an uptrend was beginning. That same crossover happened again on September 11. Image courtesy of VantagePoint.

According to Firman, the weakness to start the month wasn’t entirely unexpected.

“Measuring VantagePoint’s two trends against each other it showed the medium term was definitely weakening. The neural index turned down, their main indicators were heavily overbought, so not a big surprise that it failed at 1.17 again. Even with the recent price action, I don’t see this pair getting above 1,18 or even 1.1750 anytime soon.”

That weakening can be seen here. VantagePoint’s long-term differences indicator (blue line) and medium-term differences indicator (pink line), which compare exponential and actual moving averages against each other to forecast strengthening or weakening market trends, show the EUR/USD pair was weakening in the medium term (defined as 48 hours in advance).

Image courtesy of VantagePoint.

GBP/USD

“The US-Pound right now being dragged all over the place by Brexit talk,” Firman said. He noted that this pair also bottomed out in mid-August, and that the GPB/USD tends to be very correlated with the EUR/USD. “They’re both tied to the dollar index and they both stopped and paused on the exact same day.”

VantagePoint’s indicators don’t quite show the same upcoming weakness as the EUR/USD, indicating that this is still in an uptrend for now.

“The GBP/USD right now, I can see a pretty clear resistance zone up above 1.3180. Are we gonna get there? Yea I think so. I don’t think it will be next week. I think the dollar will pretty much still hold its gains. September/October are usually good months for the dollar.”

Image courtesy of VantagePoint

USD/JPY

The third biggest forex pair, US Dollar-Japanese Yen, has been very choppy of late, thought it also appears to be in a short-term uptrend. In Firman’s view, the pair has been hitting resistance at the 112 level, and will likely weaken in September as money usually goes back into Japan this time of year.

“I believe that the Yen will go down a little bit lower, probably around the 110 area,” he said. “Right now we’ve got a signal from VantagePoint that it’s down in the short term, medium-term is still holding, and long-term is still holding.

“What’s going to keep pushing it down is if gold keeps rising. If gold pushes lower, than Dollar/Yen will go lower,” he said.

With the dollar currently strengthening against all three major currency pairs Firman advised keeping an eye on commodities and the major stock indexes, as any change in the forex market will likely be preceded by one of those two markets.

“I’m watching the main commodities, gold and oil, the main equities indexes because that will signal how we move here. All of these trades are tied back to this dollar index. If the dollar takes a hit in one place, it’s probably going to take a hit across the board. The commodities and stocks, they’re what’s going to drive currencies.”

VantagePoint is a content partner of Benzinga. To see more of their charts or get a free demo, click here.