Forex Technical Analysis based on experience and research.

Sunday, March 12, 2017

Forex Strength and Comparison for Week 11 / 2017

In the Currency Strength table, the USD was again the strongest currency while the GBP was the weakest. It was quiet last week compared to the week before. All the Currencies remained around the level of the previous week with a maximum difference of just 1 point.


 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 the last 13 weeks is considered. See each row for more information.
   2. Next, the 13 weeks average is considered, see the last row called "Avg. 13 wks."
   3. The number of weeks that a currency was stronger than another currency can also be considered.
   4. The Technical Analysis (TA) Charts for each Time Frame could also be consulted.

For analyzing the best pairs to trade looking from a longer-term perspective the last 13 weeks Currency Classification can be used in support.
This was updated on 5 March 2017 and is provided here for reference purposes:
Strong: USD, NZD, AUD, CAD. The preferred range is from 5 to 8.
Neutral: CHF. The preferred range is from 4.
Weak: JPY, EUR, GBP. The preferred range is from 1 to 3.

When looking at the Average 13 wks. Score the USD is the strongest of all while the GBP is the weakest. The currencies are grouped together around a level which makes clear to what classification they fit best.
The AUD gained so much strength in the last 5 weeks and is now classified as a strong currency. The NZD, on the other hand, is losing a lot of strength in the last 2 weeks. With only being 7 times stronger in the last 13 Weeks than the CHF which is a Neutral currency. There are at this moment 4 strong currencies and just one Neutral currency. However, the JPY is somewhere in the middle of the range of the Weak and Neutral currencies with an Average 13 wks. Score of 3,6154 and may become a Neutral currency if it continues to gain strength.
The NZD and CAD lost a lot of strength in the last 2 weeks and one of these currencies may become a Neutral currency in the coming weeks.


Classification review

The NZD lost a lot of strength lately and as can be seen in the chart below it is now making a dip going to lows where it has not been in the last 6 months. The currency made 3 times a top with a score of 8 and bottoms at a score of 4. The last Top was at a score of 6 in Week 9. The bottom is still being made but is currently a score of 2.
The Average 13 wks. Score is getting close to the CHF and as can be seen in the chart it is reasonable to qualify the currency as Neutral in case the Average 13 wks. Score gets closer to the CHF. Below you can see the Weekly Currency Score Chart with the 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 value 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 clearer.

   1. First of all only better-classified currencies in combination with weaker classified currencies are "Approved" when there is a Currency Score difference of at least 1 in the current week.
   2. The only exception is when 2 currencies are similarly classified but the Currency Score difference is equal to or more than 4.
   3. It means that each currency should be as far apart from each other as possible in the range from 1 to 8. The classification of the currencies in question may change in the longer term. By using the difference of 4 which is exact at the half of the range it seems a safe approach for trading 2 currencies which are similarly classified.
   4. Even though currencies may be in the same classification 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:
USD and AUD.
These are Strong or Neutral 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 Neutral currencies from a longer term perspective.

Currencies with a high deviation seem less interesting to trade because they are less predictable. A good example at the moment is/are e.g. the:

Some of the pairs in the "Currency Comparison Table" comply for a longer term trade based on the Technical Analysis (TA) of the Daily and Weekly chart. For the coming week, these seem to be: GBP/USD, EUR/GBP, NZD/USD, GBP/AUD, GBP/CHF, USD/CAD, USD/JPY, AUD/NZD, USD/CHF and AUD/JPY.


Besides this article, I also use the Forex "Ranking, Rating and Score" which is also available once a week on my blog. 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", "Introduction to the FxTaTrader Forex Models" and "Statistics and Probabilities" 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 a recommendation to purchase any financial instruments. The choice and risk are always yours. Thank you.