A good currency pair will lose speed when approaching a clear line of resistance and support and then bounce back into range. If it has a strong momentum, this currency pair will pierce through the clear line and only leave dust behind them. We all like these pairs – the more predictable ones. Unfortunately, not all of them behave that way.
Update: 5 Most Predictable Currency Pairs – Q1 2015
As central banks diverge in policy and currencies move, so does their behavior. Here is an updated and ranked list for for the most predictable currencies in Q2 2014, with details about each pair’s characteristics.
- AUD/USD: After a big downfall in 2013 and a confusing time, the Aussie is back in shape and this is set to continue. The pair provides strong moves in both directions, with clear trends that are easy to see with textbook higher highs and higher lows. While the current direction of the pair could change, the behavior could remain clear, with lower lows and lower highs. In addition, the pair trades in clear channels.
- EUR/USD: The world’s most popular currency pair is now in a good period: gradual rises are followed by sharper moves down, ranges are more respected and so are support and resistance lines. While trend lines are likely to remain problematic, euro/dollar does have a feature that pushes it up the list: the 1.40 line. This politically watched figure seems to be a line in the sand for the ECB, as we have seen several times and watching this line for a bounce or a break helps in assessing the trade for the pair.
- NZD/USD: The rise of the kiwi is not a one way street, but this street is full with signs. The pair tends to rise to a new high, mark the top and then trade in range. The falls follow a similar pattern, with a mark at the bottom, which then turns into a double bottom. The range of pips is limited, but quite clear.
- USD/JPY: Placing this major pair in the most predictable list is not the obvious thing, as dollar/yen had long periods of choppy, ugly behavior. However, the recent divergence in monetary policy between the loosening BOJ and the tightening Fed certainly provides more volatility and this comes with more predictability. When the pair is not trending, it trades in well defined trading ranges. While this isn’t everybody’s cup of tea, the clear behavior is certainly an opportunity for range traders.
- USD/CAD: Volatility has risen in Q1 and predictability hasn’t really improved – it has trended in a choppy, unpredictable manner. However, there is a good chance that with a growing monetary policy divergence, we could get better range trading in this pair.
One major pair that is out of the list is GBP/USD: after a period of trending upwards, cable entered a nice consolidation phase, but lost its direction since then. As economic indicators point in different directions, this choppy period will probably last throughout the second quarter.
In addition, no cross made it to the list this time: major and minors were just better than EUR/GBP, EUR/JPY, GBP/JPY and others.
For reference, here is the list for Q4 2013.
What do you think about this list? Do you agree? Disagree? What are your favorite pairs?
Further reading: 50 Top Forex Twitter Accounts