Forex Technical Analysis based on experience and research.

Monday, April 3, 2017

Forex Strength And Comparison for April 2017

In the Currency Strength table the AUD was again the strongest currency while the EUR was again the weakest. There were some significant changes last month with the GBP gaining 3 points and the JPY 2 points, the NZD lost 5 points. The other currencies remained at the same level.


12 Months Currency Score Strength

The 12 Months Currency Strength and the 12 Months Average are provided here below. This data and the "12 months 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 month, we perform several checks to avoid this.
  1. First of all the strength over a period of 12 months. See each row for more information.
  2. Then the 12 months average, see the last row called "Avg. 12 M."
  3. The number of months 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 last 12 months Currency Classification can be used in support.
This was updated on 29 January 2017 and is provided here for reference purposes: 
Strong: USD, JPY, NZD. The preferred range is from 6 to 8.
Neutral: AUD, CAD, CHF. The preferred range is from 3 to 5.
Weak: EUR, GBP. The preferred range is from 1 to 2.

When looking at the Average 12 M. Score the NZD is no more the strongest because of the low score last month. The USD is now the strongest of all while the GBP remains the weakest. The currencies are grouped together around a level which makes clear to what classification they fit best.
For some currencies this may not be very clear, a good example at the moment is the AUD being a Neutral currency but having an Average 12 M. score of 4,9167 being between the Strong and Neutral currencies. This currency is gaining a lot of strength in the last 3 months and is clearly the strongest of the Neutral currencies, which are the CHF, CAD and AUD.


Classification review

The EUR and GBP are for a long time very weak currencies. In the last months it seems as if the GBP is trying to get out of it having had a Score of 1 the last time in October last year. 
Here below you can see the Monthly Currency Score Chart with 24 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 month you can read the article "Forex Ranking, Rating and Score" which is published every month 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 3 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.

The text  "Approved" mentioned in the `Currency score comparison table` has been taken out. The reason is that the information is published once a month and the rates change during the month. The mentioned scores also change and different opportunities may show up during the month. It seems then better to provide only the currency Score difference. Depending on the development of the rates during the month a Score difference of e.g. 3 may become more interesting than a Score difference of e.g. 5.

There are many ways to follow the rate changes during the month. This can be done e.g. by looking at the charts of course and checking e.g. the Ichimoku and/or MACD in the Weekly and Daily chart. There are also many tools, apps and websites where the development of rates of currencies is shown in different automated ways. This may be by pips or percentage difference or by comparing the values of indicators like the RSI, Moving Averages, MACD, Ichimoku etc. On my blog is a Heatmap available that can be of use also.

"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 12 months 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 month.
  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 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 "12 Months currency classification" and the "Currency Comparison Table" the most interesting currencies for going long seem to be the:
These are Strong or Neutral currencies from a longer term perspective when looking at the last "12 Months 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 e.g. the:


Besides this article, I also use the Forex "Ranking, Rating and Score" which is also available once a month 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 month.


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.