Search ForexCrunch

A predictable currency pair loses slows down when it approaches a clear technical resistance  or support level, eventually reversing back within the range. If this currency pair has strong momentum, it makes a distinct break, piercing through the line and more importantly: not looking back. Yet not all currency pairs are born equal: the less predictable ones suffer from choppy trading, false breaks and create headaches for the trader.

This predictability evolves and changes over time and depends on many factors. Here is an updated and ranked list for for the most predictable currencies in Q2 2014, with details about each pair’s characteristics:

  1. EUR/USD: The world’s most popular currency pair is the top choice for predictability. Fundamentally, the pair consists of endless moving parts and the recent correlation with German bunds just adds to the mess. However, on the technical level, we see  better  performance which is expected to accompany us through the summer months. EUR/USD tends to create double and sometimes triple tops and respect breakouts for long periods of time. Previous support lines become resistance and the other way around. We have seen that with various levels and the growing interest in the pair means more predictability going forward. This may change after the first Fed hike, but for now, this pair enjoys the highest predictability.
  2. NZD/USD:  The kiwi has suffered a significant downfall, but the directional trade has  benefited its predictability. The upcoming months will likely  see  ongoing high  volatility, especially due to monetary policy divergence. This is likely to keep  predictability quite high. Kiwi/dollar tends to have a superb memory for old lines. On the way down, this is very helpful. It also tends to make an initial test of an important line, coming for a second time to break it.
  3. EUR/GBP: While GBP/USD tends to be a bit too violent regarding technical lines, the cross-channel cross is behaving quite nicely.  Clearly there are less pips to be made than in cable, but patterns tend to repeat  themselves: upon a break, the pair marks the next level and then becomes comfortable in range. More directional trade to the downside will make it more predictable and this is on the cards for Q3.
  4. AUD/USD: Traditionally one of the more predictable pairs but  summer in the northern hemisphere is not its best time.  But for the Aussie, this still means a high  ranking. With this pair, it’s important to watch lower highs for downside movements  or higher lows for upside ones.
  5. USD/JPY: There is a saying that forex trading is sometimes akin to air traffic control: long hours of boredom with a few moments of  panic and extreme activity. Perhaps  dollar/yen provides the best example: long months of range trading and then a clear break that sometimes seems unstoppable.  Despite seeing such a move to 125 not too long ago, there is a chance that it will happen again in Q3, and that  allows the pair to slip into the list.

What do you think? Do you  agree with the list or have better  pairs to trade?

Some notes:

  • GBP/USD: As aforementioned, the pair became more violent and the low liquidity in Q3 could make things worse.
  • CHF: While the SNB removed its peg in a  shocking manner in January, it continues intervening, so Swiss crosses are suspicious.
  • USD/CAD: The pair used to be on the list but is likely to remain choppy also in Q3.

For reference, here is the  list from Q1 2015.

Further reading:  50 Top Forex Twitter Accounts