5 Most Predictable Currency Pairs for Q4 2012

10/16/2012 9:00 am EST

Focus: CURRENCIES

In the current environment, characterized by 24/7 financial crisis news reports and global uncertainty, Yohay Elam of ForexCrunch shares his list of the most predictable currency pairs.

Some currency pairs will make a convincing follow through when they break significant support or resistance, and will not look back. When these lines are strong enough, these currency pairs will tend to slow down and eventually bounce back at these lines. These are the more predictable currency pairs—they follow technical rules in a better manner. Unfortunately, not all currency pairs are well behaved and it’s important to separate the wheat from the chaff.

The good or bad behavior tends to change over time: some become more predictable and others lose their charm. Market volatility also has an impact. Here is an updated ranked list of the most predictable currency pairs for Q3 2012, each with its characteristics.

  1. AUD/USD: This pair remains at the top of the list. It treats support and resistance lines with much respect, and also plays nicely with uptrend and downtrend channels. The growing number of issues and the current high levels could turn into a significant downfall. Note that Aussie/dollar behaves in a better manner with higher volatility, making October and November stronger months for predictability, and December weaker.

  2. NZD/USD: Australia’s neighbor also has nice patterns. Lines switch from support to resistance and the other way around. It recently developed a double top and a double bottom, which will be interesting to watch. For the fourth quarter, the pair moved up the list.

  3. EUR/GBP: This popular cross can be frustrating at times, due to very limited range trading. However, these ranges work nicely for those with low spreads. More importantly, breakouts lead to a different and distinct range quite often.

  4. GBP/JPY: The “geppy” or “dragon” is undoubtedly an exciting pair. It has sometimes been too exciting and too choppy, but it is improving and made it to the list. Breakouts out of range are usually quite impressive. Both the pound and the yen do not behave well against the dollar, and leave the action to the cross.

  5. EUR/USD: The world’s No. 1 currency pair has been trading in more choppy waters recently, pushing it lower in the list. Nevertheless, the pair still tends to mark a peak or a trough and then retests it over and over again, creating double/triple bottoms or tops. The huge liquidity stabilizes the moves, which are triggered by the nonstop debt crisis news. The pair would easily lose touch with any technical lines on a major European event, such as a Greek exit, but would definitely move big time.

Here are a few more quick notes:

  • USD/JPY returned to its bad behavior after a few good months and isn’t expected to improve anytime soon.

  • USD/CHF has gained some freedom after EUR/CHF began trading above the 1.20 peg, but the franc may soon return to trading in tandem with the euro.

  • USD/CAD had a few good moments in Q3 by respecting strong support, but other than, its behavior leaves much to be desired.

  • GBP/USD tends to trade in ranges, but it isn’t at its best. It fell off the list.

By Yohay Elam of ForexCrunch.

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