Welcome to my "Strength and Comparison" article for the coming week. The article "Ranking, Rating and Score" has also been published. In the Currency Strength table the NZD is the strongest currency, the GBP is the weakest. The EUR clearly got stronger in the last week and the JPY weaker. For more details read both of my articles where the relevant charts and tables are provided.
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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.
- First of all, the strength over a period of the last 13 weeks is considered. See each row for more information.
- Next, the 13 weeks average is considered, see the last row called "Avg. 13 wks."
- The number of weeks that a currency was stronger than another currency can also be considered.
- The TA Charts for each time frame could also be consulted.
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 25 September 2016 and is provided here for reference purposes:
Strong: USD, JPY, NZD. The preferred range is from 6 to 8.
Neutral: CHF, AUD. The preferred range is from 4 to 5.
Weak: EUR, GBP, CAD. The preferred range is from 1 to 3.
As already written in the last weeks the distance in the score of several currencies are very small.
The USD (strong) has an average score higher, but close to the AUD (neutral). It had, however, 8 times a higher score in the last 13 weeks so it is clearly still stronger but may become a neutral currency. This was avoided last weeks because of the high scores in the last 4 weeks.
The EUR (weak) has an average score lower, but close to the CHF (neutral). It had only 6 times a higher score in the last 13 weeks so it is clearly the weaker currency. The EUR, however, is more in the range of the neutral currencies than the weak currencies. Because of the low score of last 3 weeks it remains a weak currency for now.
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The Weak Currencies
As can be seen, the EUR looks like it's trying to jump out of the lower range by showing 3 times a peak in the last period. The last peak is developing and it is now at a score of 4. The CAD showed some strength in the last period showing a peak but is back to the lower range in the last weeks. The GBP remains clearly the weakest currency of all.
Here below, you can see the Weekly Currency Score Chart with 6 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 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.
"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. In doing this we apply 2 rules to make it clearer.
- 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 week.
- The only exception is when 2 currencies are similarly classified, but the currency score difference is equal to or more than 4.
- 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.
- 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 "13 Weeks currency classification" and the "Currency Comparison Table" the most interesting currencies for going long seem to be the:
NZD, USD and CHF.
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:
GBP, CAD and EUR.
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:
JPY.
Some of the pairs in the "Currency Comparison Table" comply for a longer term trade based on the Technical Analysis (TA) of the Daily and Weekly chart. For the coming week these seem to be: GBP/NZD, GBP/USD, GBP/CHF, NZD/CAD, USD/CAD, EUR/GBP and AUD/CAD
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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 recommendation to purchase any financial instruments. The choice and risk is always yours. Thank you.