Some currency pairs slow down when they approach a strong line of support or resistance, and follow by bouncing back within the range. If momentum is significant, these type of currency pairs will make the break without looking back. These are the more predictable currency pairs. However, not all currency pairs enjoy this kind of technical behavior.
The predictability of currency pairs is not always stable on its own: changes in monetary policy, volatility and seasonality are among the factors changing the behaviors. Here is an updated and ranked list for the 5 most predictable currency pairs for Q1 2015, each one with its own style:
- AUD/USD: This currency enjoyed predictable behavior while it was trending down and has the capacity to respect support and resistance lines. When the pair posts higher highs, it trends up, and when it posts lower highs, the direction is down. This textbook behavior in channels and ranges is set to continue.
- GBP/USD: Cable usually suffers stronger and sometimes more violent moves than EUR/USD but these are becoming smoother, placing the pair higher in the list. One of the reasons for the more predictable behavior is the fact that both the BOE and the Fed are set to tighten. This certainly doesn’t mean that ranges are small: they are still wide but are just more respectful to technical lines. Note that when we have a breakout, the pair marks the edge of the next range before ranging within it.
- NZD/USD: For those that do prefer narrower ranges, the kiwi often provides opportunities, especially if you look back on the charts: the kiwi has a good memory for old technical lines as well as new ones. This is set to continue.
- USD/CAD: Often overlooked by traders, this pair returns to the list. The huge volatility in oil prices, which is set to continue, has contributed to bigger movements and better predictability for the pair. The pair has a tendency to bounce first, break later when it encounters big lines.
- EUR/USD: The world’s most popular pair has enjoyed nice behavior in Q4, amid a clear trending lower. And while it remains on the list, it falls to the last place. The specter of QE in the euro-zone is a game changer and could trigger unexpected behavior. The general trend is down, but the path is set to be more bumpy. This pair could be goof for a longer term position, but could be harder to trade in shorter terms.
Do you trade these pairs? What do you think? Agree? Disagree?
- USD/JPY is absent from the list. While it isn’t the hated, narrow ranging pair, the moves are harder to digest.
- CHF: The peg to the euro and the fall of the euro put EUR/CHF too close to 1.20, making any trades on any Swiss pairs a mirror of the euro and just less predictable.
- Crosses: There are certainly some interesting crosses such as GBP/JPY for those liking action and AUD/NZD and EUR/GBP for those looking for less pips.
For reference, here is the list for Q4 2014.
Further reading: 50 Top Forex Twitter AccountsGet the 5 most predictable currency pairs