Welcome to my "Strength and Comparison" article for the coming week. The article "Ranking, Rating and Score" has also been published.
For analyzing the best pairs to trade looking from a longer-term perspective, the last 3 months Currency Classification can be used in support.
This was updated on 10 July 2016 and is provided here for reference purposes:
Strong: USD, JPY, NZD. The preferred range is from 6 to 8.
Average: CHF, CAD. The preferred range is from 5 to 6.
Weak: EUR, AUD, GBP. The preferred range is from 1 to 3.
13 Weeks Currency Score Strength
The 13 Weeks Currency Strength and the 13 Weeks Average are provided here below. This data and the "3 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 week, we perform several checks to avoid this.
- First of all the strength over a period of 13 weeks. See each row for more information.
- Then the 13 weeks average, see the last row called "Avg. 13 wks."
- The number of weeks that a currency is stronger than another currency can also be evaluated.
- The TA Charts for each Time Frame can also be consulted.
- Besides these the "13 weeks Currency Classification" chart of each currency is also consulted and compared.
As can be see in the "Currency Strength Table" here above, the CAD, being an average currency, has lost strength lately. In the last 6 weeks it had a lower score than the AUD, which is a weak currency at the moment.
Although the 13 weeks average of the CAD is still higher compared to the AUD, it is becoming a small difference. The EUR is also showing more strength last week and has a similar score as the AUD. However, in the last period it had a higher score only once, which was last week.
If the AUD remains this strong and the CAD this weak in the coming weeks, they will change places in the Currency Score Classification. Here below you can see the Weekly Currency Score Chart of the AUD and the CAD with 6 months data as a reference.
Currency Score Comparison
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 uses additionally the volatility and statistics for creating the best and worst performers in the list from number 1 to 28.
The additional analysis 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 clear:
- First of all only better classified currencies in combination with weaker classified currencies are "Approved".
- The only exception is when 2 currencies are similarly classified but the Currency Score difference is equal to or more than 4.
Putting the pieces together
Based on the last "3 months currency classification" and the "Currency Comparison Table", the most interesting currencies for going long seem to be JPY and NZD.
These are strong or average currencies from a longer-term perspective when looking at the last "3 months currency classification".
For going short, the same analysis can be done and the following currencies seem to fit best: CAD and GBP.
These are weak or average currencies from a longer-term perspective.
Currencies with a high deviation seem less interesting to trade because they are less predictable. These currencies are at the moment the USD, AUD and CAD.
Unless these currencies offer a clear opportunity based on the longer-term, they are avoided. However, these currencies may offer opportunities for the short-term trader.
Some of these pairs comply for a longer-term trade based on the daily and weekly chart. We will look at these ones here in a bit more detail.
- When analyzing the weekly and daily charts the best pairs for the coming week seem to be the:
GBP/JPY, GBP/NZD, CAD/JPY, GBP/AUD, USD/JPY, GBP/CHF, EUR/JPY, NZD/CAD, GBP/USD, NZD/USD, AUD/JPY, GBP/CAD and the EUR/NZD. - A crossed join between the Top 10 pairs in the "Ranking and Rating List", the "Currency Comparison Table" and the pairs with the best charts mentioned here above shows the following interesting pairs:
GBP/JPY, GBP/NZD, CAD/JPY, GBP/AUD, USD/JPY, GBP/CHF, EUR/JPY and the NZD/CAD.- All pairs are mentioned as "Approved" in the "Currency Comparison Table.
- The GBP/USD, NZD/USD, AUD/JPY, GBP/CAD and the EUR/NZD are not mentioned in the Top 10 of the Ranking and Rating list.
The article "Ranking, Rating and Score" published this weekend contains the following interesting pairs:
- GBP/JPY with the NZD/CAD
- CAD/JPY with the GBP/NZD
All these pairs are mentioned as interesting according to the combinations mentioned in the crossed join here above. The pairs mentioned in the "Ranking, Rating and Score" have the preference according to:
- the order in that list
- the currency score difference in the "Currency Comparison Table"
- and how the charts in the different time frames are looking.
The pairs mentioned here above are just a few examples and many other combinations are possible.
It is recommended to read the page Currency score explained and Models in practice for a better understanding of this article.
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.