Some currency pairs perform better than others. A predictable currency pair tends to slow down ahead of a clear obstacle such as a clear line of support or resistance and retreat, creating a double-bottom or a double-top. And if momentum is strong enough, the pair will make a clear breakout, leaving dust behind it and continuing to push through in the same direction. Basically, a predictable pair is “well behaved” and provides opportunities for technical traders. On the other end, an unpredictable pair trades choppily and disrespects technical lines, creating only headaches and losses for forex traders.
The behavior of currency pairs changes with time: seasonality, volatility, and many other factors push pairs up and down the predictability ladder. As 2017 begins, here is an updated and ranked list for the first quarter, which promises turbulence.
- GBP/USD: After a wild 2016 that included Brexit and the flash crash, this may be a surprising pick. However, cable tends to move quite nicely when uncertainty is high. The ranges are typically wider than in other currency pairs yet this provides more opportunities for playing the range. Yet those seeking breakouts need not fear: triggering of Article 50 and Trump’s first days in office will likely result in high volatility but also high liquidity, allowing for big breakouts with significant ground to run. While breaking to new multi-decade lows, fresh depths are certainly possible, but we could see the pair marking the new low and paying its dues to it. Another flash crash is not likely to follow, at least not so soon. All in all, GBP/USD could provide plenty of breakout opportunities.
- AUD/USD: The Australian dollar did not excel in predictability during 2016, but 2017 could be very different. Long periods of consolidation in this pair are usually followed by breakouts. The pair tends to respect downtrend and uptrend channels and not only old flat lines of support and resistance. There are good chances for choppiness to end, yet watch out.
- USD/CAD: Usually not a popular currency pair for traders, also this commodity pair could be on the mend. The pair has various factors playing in its favor (against the loonie more than anything else) and when Dollar/CAD trends, its behavior improves. If we indeed see an ascent, it will follow into charted territory this time, following the levels that we saw in 2016. This pair does not necessarily move in perfect downtrends or uptrends, but low levels visited in the not-so-distant past will probably remain very relevant.
- GBP/JPY: The pound is featured here for the second time, but the “dragon” is not for everyone. The cross enjoys (or suffers) massive volatility and should be traded with lower leverage than usual. Uptrend and downtrend moves are standard, and they can run quite steeply. In 2017, trends mostly depend on the pound but also the haven yen has a role. Upon a rise, the pair could be more predictable than on a crash.
- EUR/USD: The world’s most popular currency pair could reach new lows, including parity. The pair has a significant advantage: it “remembers” old lines, meaning that price levels that were last witnessed in the early years of the millennium could come into play and shape trading. However, euro/dollar does not reach a high position in the list as it has a tendency for false breaks, or fakeouts. Beware of the initial breakout: it could be the wrong one.
Agree or disagree with this list? What are your favorite currency pairs?
And here are currency pairs you might feel are missing:
- USD/JPY: This highly-traded pair had a few volatile years, but this could calm. Ranges could remain wide, but not enough to provide predictable trading, at least not sufficient to make it into the list. More: JPY – the underperformer in 2017.
- USD/CHF: As long as the Swiss National Bank continues intervening in currency markets, we should all stay away from any CHF cross.
- NZD/USD: The kiwi usually makes it to the list, but the choppiness that characterizes the pair is likely to continue well into Q1 2017 and perhaps beyond.
Here are the previous lists from Q3 2016 Q2 2016 and Q1 2016
And you may also be interested in the top 64 twitter accounts to follow for forex traders.