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Not all forex pairs are born equal: some  move fast and others  move slowly,  some react to events and some don’t and most importantly: some are predictable and others just aren’t. What is a predictable currency pair?  That is a pair that makes life easier for the technical trader by respecting support and resistance lines or breaking out  of ranges with momentum and without looking back. On the other hand, unpredictable pairs  will trade choppily without any clear patterns but with a lot of frustration around it.  

And things are never static:  a currency pair can be predictable for a certain period of time  and then fall out of love with technical lines afterwards. Seasonality, political events and monetary policy divergence are all among the factors shaping the predictability. Here is an updated and ranked list for of the 5 most predictable currency pairs for Q2 2016. The list is offered only for Forex Crunch subscribers.

  1. USD/JPY:  Choosing this pair to top the list may come as a surprise given the choppy past and  intervention by the central bank, but there are good reasons to like. The pair certainly likes its ranges, respecting both support and resistance lines. It tends to form clear double and triple bottoms and tops and follows these lines very nicely.  Regarding the interventions, they have become more predicable as well, even  converging with the double bottom. This trend will likely continue in Q2 with the  growing importance of the US primaries as a factor shaping the pair, and  just after the impact of the end of the Japanese fiscal year have come to an end.
  2. USD/CAD: This pair maintains its position from the previous list: the pair has a “good memory” for new as well as old lines of support and resistance. After some crazy moves in Q1 and a big fall from the extreme highs,  the territory is much more charted, making it easier to see those lines on the charts, both long term and short term ones. It is important to note the relative strength of the pair at different times: when it can’t go up on data that should push it there, the trend is down, and the other way around. These mood swings are relatively easy to see.
  3. EUR/GBP: It’s two steps forward, one backwards for this popular cross, which  can trade in range for quite some time before  making a significant move and settling again in a different range. We have seen changes here: the euro is not the safe haven it used to be and the pound is very vulnerable. With the looming EU referendum, both currencies  are reacting quite similarly. This makes the euro problematic on its own and the pound problematic on its own, but this cross neutralizes this effect, leaving much more space for the technical trader.
  4. AUD/USD: This pair  almost always appears on the list but it has lost a lot of its charm. While the pair still respects technical lines, they are  not exactly the “range separator” kind they used to be and with China not expected to provide the same volatility in Q2, the pair falls into the fourth  place. Uptrend support lines and downtrend resistance lines could have a bigger say this time.
  5. NZD/USD: The kiwi has become more range bound and this could continue, as  the internal strength of the economy balances out the global weakness. Support and resistance lines along the extremes are still meaningful for those looking for range trading, but the lack of direction, which and the  choppiness within the range make it less predictable than beforehand.

Agree or disagree with this list? What are your favorite currency pairs?

And here are some notes on the clear absentees from the list:

  • EUR/USD: The world’s most popular currency pair is absent. Fundamentally, while it remains fascinating, the euro is flirting between a risk currency and a safe haven, making things complicated.  And while it did  respect some old technical lines in Q1 (around the Draghi drag for example), the second quarter will likely be much more messy because of the British EU Referendum in addition to the long list of factors impacting it.
  • GBP/USD: As aforementioned, the June 26th referendum and the buildup to this event might create opportunity, but this pair tends to go too wild, with sharp moves in such situation and little compliance with technical lines,  deserving its  reputation as “the devil’s currency”.
  • USD/CHF and CHF crosses: With SNB intervention imminent at any point in time, EUR/CHF carries risk and so do other Swiss crosses.  Regarding Dollar/CHF, this  could turn more and more into a mirror of EUR/USD, and as aforementioned, could be risky.

Here are the previous lists from Q1 2016 and Q4 2015.

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