In foreign exchange trading, not all currency pairs behave in the same manner: some are more predictable while others are far less predictable. What does this mean? A predictable currency pair slow down upon approaching a clear line of support or resistance. And in case the pair in question has the necessary momentum, it will pierce through the line, leaving only dust behind it. On the other hand, the currency pairs that are less predictable will chop the lines and send the technical trader to the drawing board.
And as forex trading is never a one way street, also predictability changes as markets evolve. In this case, greater monetary policy divergence, higher uncertainty about global growth and more significant volatility all feed into the calculation. Here is a ranked and updated list for the 5 most predictable currency pairs for Q1 2016, with details about the characteristics of each pair. For the first time, the list is offered only to subscribers of the Forex Crunch newsletter.
- AUD/USD: This pair usually appears on the list, and this time on the top. Aussie/USD has huge respect for technical lines, using them as clear separators of ranges: a move above resistance means this line instantly turns into support. In addition, a break of an uptrend to the downside leaves no doubt about the next direction of the pair. Trend-lines are certainly not hard to draw. In Q1 2016, a fresh focus on China combats some internal Australian strength. These contradicting powers result in more moderate and more predictable moves rather than choppiness in the case of this pair.
- USD/CAD: The erratic daily moves alongside crashing oil prices seem to show little respect for any kind of technical line, especially on uncharted territory. However, when taking a step back to the daily or weekly charts, we can see a nice pattern of a big move forward, and and quite a clear consolidation before the next move. As we always note, and as some suspect for Dollar/CAD, the trend may not necessarily continue to the upside. Nevertheless, in case of an upside move or a downside move, it seems that the animal spirits of this pair are released, and more is yet to come. The focus on oil prices seems to benefit the predictability of the pair.
- EUR/GBP: This popular cross has the tendency to stick to a range, before making a clear breakout and marking the next level. Contrary to the past, the moves are bigger due to the strengthening role of the euro as a safe haven and the pound as a “risk currency”, a picture that was quite different. The bigger moves seem to be favorable for the pair, which results in less choppiness than in the past and this will likely continue for some time.
- NZD/USD: While the kiwi had a great ending to the year and justified its top position in the previous list, Q1 2016 seems more complicated. In comparison with the Aussie, this pair does not cope as well with the contradiction between being a “risk” and internal strength. The kiwi still enjoys more predictable behavior than many other pairs, by have a good memory for old lines, making double bottoms and double tops, but more caution is warranted this time around.
- EUR/CHF: This may certainly a surprising choice, given the violent scenes seen in this cross in early 2015, the infamous SNBomb. However, for those looking to collect a few pips every time, it seems that the range is quite clear. And if we will see a breakout, it is more likely than not to be result of further intervention by the SNB. It’s important to note that this pair is certainly not for everyone, but with well defined ranges and and a central bank itching to act, there are opportunities here.
Are you trading these currency pairs? Do you agree or disagree?
Here are some notes on pairs that didn’t make it. Some are very popular:
- EUR/USD: The world’s most popular currency pair just has too many moving parts, and the post Fed-hike, post-Draghi Disappointment world is quite messy. While in theory, this range trading could be worthy, the behavior is expected to remain erratic, at least in Q1. However, as seen on the list, two euro crosses are not bad at all.
- GBP/USD: Cable sometimes has its good moments, but after it became a loser, also its predictability lost its charm. The choppy moves are here to stay.
- USD/JPY: Dollar/yen was not too bad in Q3 but the recent weakness implies unpredictable intervention from the BOJ as well as messy behavior in general.
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