The Currency Score analysis is one of the parameters used for the Ranking and Rating list which was published earlier this weekend. Besides this analysis and the corresponding chart I also provide the Forex ranking and rating list.
It is recommended to read the page Currency score explained and Models in practice for a better understanding of the article. This article will provide my analysis on the 8 major currencies based on the technical analysis charts using the MACD and Ichimoku indicator on 4 time frames: the monthly, weekly, daily and 4 hours. The result of the technical analysis is the 3 screenshots in this article showing the 13 Weeks Currency Score Data, Currency Score and the Currency deviation table.
Last 3 months currency classification
The last 3 months currency classifications from a longer term perspective are provided for reference purposes. The necessary charts can be found in the previous article Weekly Currency Score Wk47. The currencies are classified for the coming weeks as follows:
- Strong: GBP / USD. The preferred range is from 7 to 8.
- Average: CAD / NZD / JPY. The preferred range is from 4 to 6.
- Weak: AUD / CHF / EUR. The preferred range is from 1 to 3.
13 Weeks Currency Score Data
The 13 weeks currency score data and the 13 weeks average is provided here below. This data and the "3 months currency classification" are considered for choosing the preferred range. At the moment we can see that the CAD and CHF are having a very similar value in the 13 weeks average. The CHF is having a slightly higher value.
Same situation applies to the GBP compared to the NZD and the JPY. The latter has an even higher value. Because it is not the idea to change the range for a currency weekly based on only the 13 weeks average the "3 months currency classification" chart of each currency is also consulted. It is good to know that some currencies may switch ranges in the near future. When looking at the chart below it is clear to see that since 20-9-2015 the GBP, NZD and JPY are switching places. However, before 20-9-2015 the GBP is clearly the strong currency and as long as no other currency takes over the GBP remains the stronger currency of the three.
Currency Score
For analyzing the best pairs to trade the last 3 months currency classification is the first issue. When looking at the most recent score that is used for the coming period we can see in the screenshot below the deviations and we can draw the first set of conclusions. These are given below the screenshot.
In essence it boils down to the 3 following lines of text:
- A strong currency can be traded long against all the other currencies except on a pullback(deviation) then it seems best to trade it only against a weak currency.
- A weak currency can be traded short against all the other currencies except on a pullback(deviation) then it seems best to trade it only against a strong currency.
- When an average currency is outside the range(deviation) it is best not to trade it against it's own currencies in the average range and the currencies in the range it is at.
Because the text above is quite abstract you can read below a more detailed description.
According to the Ranking and Rating list already published this weekend the following pair combinations look interesting:
We will fit each pair if possible in the right group here below and within each group also add the following abbreviations for the pair combinations:
A. -> SA = Strong Average
B. -> SW = Strong Weak
C. -> AW = Average Weak
Strong currencies
- There is a deviation for the USD and the GBP with a score of resp. 6 and 4. They should have by preference a score from 7 to 8.
- There is most probably a pullback for these currencies when looking at the market as a whole, the uptrend has lost momentum.
- B. The USD has a score at the moment of an average currency and it seems best for trading going long against the weak currencies (SW). The pair selected from the Ranking and Rating list is the AUD/USD.
- B. The GBP has a score at the moment of an average currency and it seems best for trading going long against the weak currencies (SW). There are no pairs selected from the Ranking and Rating list.
- There are no other deviations and no other average currencies. If there would be then they seem best for trading, depending on the opportunities coming around, in the following ways:
- A. going long against the average currencies (SA). There are no pairs selected from the Ranking and Rating list.
- B. going long against the weak currencies (SW). There are no pairs selected from the Ranking and Rating list.
Average currencies
- There is a deviation for the CAD with a score of 1. It should have by preference a score from 4 to 6.
- There is a decrease of momentum for the CAD which is getting weaker.
- A. The currency a score at the moment of a weak currency and it seems best for trading going short against the strong currencies (SA). The pairs selected from the Ranking and Rating list is the USD/CAD.
- There is a deviation for the JPY with a score of 8. It should have by preference a score from 4 to 6.
- There is an increase of momentum for the JPY which is getting stronger.
- C. The currency has a score at the moment of a strong currency and it seems best for trading going long against the weak currencies (AW). The pair selected from the Ranking and Rating list is the AUD/JPY.
- There are no other deviations and no other average currencies. If there would be then they seem best for trading, depending on the opportunities coming around, in the following ways:
- A. going short against the strong currencies (SA). There are no pairs selected from the Ranking and Rating list.
- C. going long against the weak currencies (AW). There are no pairs selected from the Ranking and Rating list.
Weak currencies
- There is a deviation for the CHF with a score of 7. It should have by preference a score from 1 to 3.
- There is most probably a pullback for this currency when looking at the market as a whole, the downtrend has lost momentum.
- B. The CHF has a score at the moment of a strong currency and it seems best for trading going short against the strong currencies (SW). The are no pairs in the Ranking and Rating list.
- There are no other deviations meaning that the other weak currency (EUR and AUD) seems best for trading, depending on the opportunities coming around, in the following ways:
- B. going short against the strong currencies (SW). The pair selected from the Ranking and Rating is the AUD/USD.
- C. going short against the average currencies (AW). The pair selected from the Ranking and Rating is the AUD/JPY.
The following table shows the deviations as mentioned in the description above. All the other currencies are within their classification range. In the next article of this weekend the "Forex Weekly Currency Score Difference" these currencies will be analyzed in more detail to see if there are interesting combinations with other currencies and if there are any overbought/oversold conditions.
A good foundation is provided for looking at the Weekly and Daily Technical analysis chart of a specific pair by using the (1)"Ranking and Rating list", published earlier this weekend, with the (2)above Weekly Currency Score analysis and together with the (3)"Currency score difference" table with the (4)"Top Forex pairs table" where the Bollinger Bands analyses are made on the interesting pairs.
- The analyses are complementary where:
- the "Ranking and Rating list" takes strength, direction and volatility into account.
- the "Currency score" looks for the strong trends and pullbacks with a possible disadvantage of being overbought/oversold.
- the "Currency score difference" adds granularity to the "Currency score" by using the score difference for determining potential trends.
- the "Bollinger Band®" confirms that a potential trend found is not being overbought/oversold.
- With the "Currency score difference" and the "Bollinger Band" the disadvantage mentioned for the Currency score will be avoided.
When trading according to the FxTaTrader Strategy some rules are in place. For more information see the page on my blog FxTaTrader Strategy. Depending on the opportunities that may come up the decision to trade a currency may become more obvious at that moment. 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 recommendation to purchase any financial instruments.