FxTaTrader


Forex Technical Analysis based on experience and research.

Monday, May 1, 2017

Forex Strength And Comparison for May 2017

In the Currency Strength table, the USD was the strongest currency while the CAD was the weakest. There were some significant changes last month with the EUR gaining 3 points strength, while the USD and CHF gained 2 points. The AUD lost 5 points and the CAD 3 points. The other currencies remained around the same level of last week with a maximum change in strength of just 1 point.




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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 USD is the strongest of all and the EUR the weakest. The currencies are grouped together around a level which makes clear to what classification they fit best. It is clear to see in the Avg. 12 M. values to what groups the currencies belong.
This is not the case for the CAD which is showing a lot of weakness, having the lowest score of all currencies in the last month. It has now an Average 12 M. Score between the Neutral and Weak currencies and is the weakest currency of the 3 neutral currencies.





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Classification review

This month we take a look at the strong currencies. The NZD is clearly getting a lot weaker lately having achieved in the last 2 months only a score of 2. Based on the performance of the last 12 months it looks like only a temporary dip. The JPY is clearly back on track after the dip with the lowest score of 2 in January 2017. The USD remains firm showing in the last 7 months only scores that stayed within the strong range and during the last 12 months in the neutral and strong range.Below you can see the Monthly Currency Score Chart with the 24 months' data as a reference.



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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 information is published once a month and be aware that rates change during this period. The mentioned scores also change and different opportunities may show up. There are many ways to follow the rate changes. This can be done e.g. by looking at the charts 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 movement of trading rates of currencies is shown in different automated ways. This may be in pips or through percentage differences or by comparing the values of indicators like the RSI, Moving Averages, MACD, Ichimoku etc. On my blog a Heatmap is 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 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.



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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:
USD and JPY
.
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:
EUR, AUD and CAD.
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:
GBP and NZD.



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Besides this article I also use the Forex "Strength and Comparison" which is also available once a month on my blog. In that article we look in more detail at the relative position of the currencies and pairs. We will look in more detail at the interesting pairs from a longer term perspective for trading in the Weekly and Monthly chart. We will use the information from this article, "Ranking, Rating and Score", and analyze it further in more detail.

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.




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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.