Forex Technical Analysis based on experience and research.

Sunday, October 22, 2017

Forex Strength and Comparison Week 43 / 2017

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

The USD, AUD and EUR showed a very strong performance at the end of the week. The EUR and AUD are Strong currencies and fits exactly with the current performance in the Classification and Score that it has and may offer good opportunities to trade long in the coming week. The USD changed classification and is now a Neutral currency. It may offer good opportunities as well.

The NZD and to a lesser extent the CAD showed a weak performance. The NZD is a neutral currency and the CAD a strong currency. None of them fit with the current performance in the Classification and Score. However, the NZD is showing a lot of weakness lately and is the Weakest currency among the Neutral currencies and may become a Weak currency if the current performance continues in the coming week.

Based on the development at the end of last week as described above it seems that going long with the USD, AUD or EUR against the NZD may offer good opportunities.


 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.


Average 13 wks. Score

When looking at the Average 13 wks. Score we can see the currencies grouped together according to their classification.
There may be some doubt and in that case it could be a currency that will change its classification in the coming weeks. There are no such currencies at the moment.
  • Strong - We can see that the EUR, AUD and the CAD are clearly grouped together as Strong currencies around an Average 13 wks. Score of 5 to 7
    • The EUR is the strongest currency and continues to deliver high Scores while the AUD, being a Strong currency, is showing a bit of weakness in the previous weeks but recovered well in the last 2 weeks with a Score of 8 and 7.
  • Neutral - The USD, GBP, NZD and CHF are grouped together around an Average 13 wks. Score of 3,5.
    • The NZD is the weakest currency of this week and may become a Weak currency with the current performance. 
  • Weak - The JPY is currently the only Weak currency with a Score around 3. 
    • The USD and GBP changed classification from Weak to Neutral. 
The Neutral and Weak currencies are very close together and it is possible that there will be more classification changes in the coming weeks.


Classification review

This week we take a look at the Classification changes. We can see that the USD and GBP gained a lot of strength in the last weeks. There was a dip in the middle of October but both currencies recovered well from it.
The currencies are now classified as Neutral but the range between Neutral and Weak is very thin at the moment.
Below you can see the Weekly Currency Score Chart with the 6 months' data as a reference.

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 22 October 2017 and is provided here for reference purposes:
Strong: EUR, AUD and CAD. The preferred range is from 6 to 8.
Neutral: USD. GBP, NZD and CHF. The preferred range is 2 to 5.
Weak: JPY. The preferred range is from 1 to 1.


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.

The information is published once a week 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 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.

Comparison table Guide
  1. First of all better-classified currencies in combination with weaker-classified currencies can always be traded and vice versa. The Currency Score difference may be negative. In that case, the trade should be made after a pullback. In other words, a trade can then only take place after a recovery and the main trend being confirmed again.
  2. Second, only equally classified currencies are approved when there is a positive Currency Score difference. Also here, the trend has to be confirmed again.
    The difference between point 2 and 1 is that the long trend is not clear with 2 equally qualified currencies because that pair is in a sideways market. For that reason, the Currency Score difference cannot have a negative difference. A positive difference confirms the momentum for a short revival.
  3. Third, only Neutral currencies are Approved against a better-classified currency when there is a Currency Score difference of at least +4. In the case of a currency worse classified, the Currency Score difference has to be at least -4.
    The above-mentioned situations applicable to this point may happen when there is a clear reversal and the chart is showing a new trend with good entries in the new direction. The difference between point 3 and the previous 2 points is that with point 3 a reversal in the whole market is possible when looking at all the currencies together. This gives a better chance when a trend reversal takes place compared to point 1 and 2!
  4. By preference, each currency should be selected for a trade with a score difference as far apart from each other as possible in the range from 1 to 8. However, these opportunities are rare and for that reason point 1 offers flexibility and is the best choice to trade, point 2 is the second best and point 3 is the third best choice.
  5. The classification of the currencies in question may change in the longer term. Even though currencies may be in the same category 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 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. This week there are none.


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.