Forex Technical Analysis based on experience and research.

Friday, September 16, 2016

Forex Strength and Comparison WK 38

Welcome to my "Strength and Comparison" article for the coming week. The article "Ranking, Rating and Score" has also been published.


13 Weeks Currency Score Strength

The 13 Weeks Currency Strength and the 13 Weeks Average are provided here below. This data and the "13 weeks Currency Classification" are considered for deciding on the preferred range. Because it is not ideal nor desired to change the range for a currency every single week, we perform several checks to avoid this.
  1. First of all the strength over a period of 13 weeks. See each row for more information.
  2. Then the 13 weeks average, see the last row called "Avg. 13 wks."
  3. The number of weeks that a currency is stronger than another currency can also be evaluated.
  4. The TA Charts for each Time Frame can also be consulted.

For analyzing the best pairs to trade looking from a longer term perspective the "13 weeks Currency Classification" can be used in support.
This was updated on 7 August 2016 and is provided here for reference purposes:
Strong: USD, JPY, NZD. The preferred range is from 6 to 8.
Average: CHF, AUD, CAD. The preferred range is from 3 to 5.
Weak: EUR, GBP. The preferred range is from 1 to 2.


The Weak Currencies

In the last weeks the EUR gained a lot of strength. According to the Currency Strength table here above the Avg. 13 Weeks is higher than that of the CAD.
The CAD scored 7 times higher than the EUR in the last 13 weeks. However, the CAD is close to becoming a weak currency also for the coming period if it remains this weak.
The GBP is clearly a weak currency and had in the last weeks 2 times a stronger period but is now back to the lowest score of 1.
Here below you can see the Weekly Currency Score Chart for the weak currencies with 6 months data as a reference.


Currency Score Comparison

"Comparison table" and the "Ranking and Rating list"
The Forex Currency Comparison Table compares each currency with its counterpart based on the Currency Score. For more information about the currency Score of this week you can read the article "Forex Ranking, Rating and Score" which is published every week together with this article.
By using the comparison table directly below you can get a view without the volatility and statistics as opposed to the "Ranking and Rating list". Only the strength of each currency against the counterparts is analyzed by using the Technical analysis charts of the 4 Time Frames that are also used for the "Ranking and Rating List".
The information from the Comparison Table is the source for calculating the "Ranking and Rating List" where this list additionally uses the volatility and statistics for creating the best and worst performer in the list from number 1 to 28.

"Comparison table" and the "Currency Score Chart"
The additional analysis of this table compared to the Currency Score table is that the Comparison Table compares the strength between the currencies of each pair. By subtracting the strength of the weaker currency from the stronger currency we have a way to compare each pair combination.
The comparison table provides a way to compare currencies from a longer term perspective of 13 weeks and also simultaneously taking the current trend into account. By coloring the currencies in the X and Y axis according to their Classification we can show what the best combinations are. In doing this we apply 2 rules to make it clear.
  1. First of all only better classified currencies in combination with weaker classified currencies are "Approved".
  2. The only exception is when 2 currencies are similarly classified but the Currency Score difference is equal to or more than 4.
    • It means that each currency should be as far apart from each other as possible in the range from 1 to 8. This means that the classification of the currencies in question may change in the longer term. By using the difference of 4 which is exact the half of the range it seems a safe approach for trading 2 currencies which are similarly classified.
    • Since each classification covers only 2 or 3 scores at the most it means that the currencies should be at least one classification apart from each other in the current week.
    • Even though they are in the same classification when looking at the 13 weeks average a currency may be in a weaker/stronger period and may even change its classification in the future. See the current classification for the coming period at the beginning of this article.


Putting the pieces together

Based on the last "13 Weeks currency classification" and the "Currency Comparison Table" the most interesting currencies for going long seem to be the:
These are strong or average currencies from a longer term perspective when looking at the last "13 Weeks currency classification".

For going short the same analysis can be done and the following currencies seem to fit best:
These are weak or average currencies from a longer term perspective.

Currencies with a high deviation seem less interesting to trade because they are less predictable. There is only one currency at the moment, which is:
Unless this currency offers a clear opportunity based on the longer term it seems best to be avoided. However, this currency may offer opportunities for the short term trader.

Some of these pairs comply for a longer term trade based on the Technical Analysis (TA) of the Daily and Weekly chart. We will look at these ones here in a bit more detail.

  • When analyzing the TA of the Weekly and Daily charts the best pairs for the coming week seem to be:
    When applying a filter based on the:
    • "Currency Comparison Table" all the currencies comply.
    • Top 10 pairs in the "Ranking and Rating List" all the currencies comply except for the EUR/JPY and GBP/CHF. 


The article "Ranking, Rating and Score" published this weekend contains the following interesting pairs as example combinations:

  • GBP/JPY with AUD/USD
  • GBP/USD with NZD/CAD
  • GBP/NZD with CAD/JPY
  • AUD/JPY with USD/CAD
  • When applying a filter here based on:
    • "Currency Comparison Table" all the currencies comply.
    • Technical Analysis (TA) of the Daily and Weekly chart the pairs GBP/JPY, GBP/USD, NZD/CAD, GBP/NZD and CAD/JPY comply.
The pairs mentioned in the "Ranking, Rating and Score" have the preference according to:
  • the order in that list,
  • the Currency score difference in the "Currency Comparison Table" 
  • and how the charts in the different Time frames are looking. 
The pairs mentioned here above are just a few examples and many other combinations are possible.


Besides this article I also use the Forex "Ranking, Rating and Score" which is also available once a week on my blog at FxTaTrader.com. In the article "Ranking, Rating and Score" we look in more detail at the absolute position of the currencies and pairs.

It is recommended to read the page Currency score explained and Models in practice for a better understanding of the article. If you would like to use this article then mention the source by providing the URL FxTaTrader.com or the direct link to this article. Good luck in the coming week.


DISCLAIMER: The articles are my personal opinion, not recommendations, FX trading is risky and not suitable for everyone.The content is for educational purposes only and is aimed solely for the use by ‘experienced’ traders in the FOREX market as the contents are intended to be understood by professional users who are fully aware of the inherent risks in forex trading. The content is for 'Forex Trading Journal' purpose only. Nothing should be construed as recommendation to purchase any financial instruments. The choice and risk is always yours. Thank you.