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 26 June 2016 and is provided here for reference purposes:
Strong: USD, JPY, NZD. The preferred range is from 6 to 8.
Average: EUR, CHF, CAD. The preferred range is from 4 to 6.
Weak: AUD, GBP. The preferred range is from 1 to 2.
13 Weeks Currency Score StrengthThe 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 EUR, being an average currency, has lost strength lately. In the last 4 weeks it had a score of just 2, which is a value for a weak currency in that period. This moves the 13 weeks average down to a value of 3,6923 curently. This value is far from the other average currencies, the CHF and the CAD. It is at the same time a value close to the AUD which is a weak currency. The EUR was up to this week 7 times stronger in the last 13 weeks compared to the AUD and that is just 7 out of 13. The EUR may become a weak currency if the weakness continues in the coming period. Here below you can see the average currencies and how the EUR is clearly getting weaker compared to the other average currencies.
Currency Score Comparison
"Comparison table" and the "Ranking and Rating list"
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 performer in the list from number 1 to 28.
"Comparison table" and the "Currency Score Chart"
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.
- It means that each currency should be as far apart from each other as possible in the range from 1 to 8. This means that the classification of the currencies in question may change in the longer term. By using the difference of 4 which is exact the half of the range it seems a safe approach for trading 2 currencies similarly classified.
- Since each classification covers only 2 or 3 scores at the most it means that the currencies should be at least one classification apart from each other in the current week.
- Even though they are in the same classification when looking at the 13 weeks average 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 top of this article.
Putting the pieces togetherBased on the last "3 months currency classification" and the "Currency Comparison Table" the most interesting currencies for going long seem to be the:
JPY, NZD and the USD.
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:
GBP, EUR and the CAD.
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 e.g. the:
EUR and the AUD.
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/USD, GBP,NZD, EUR/JPY, GBP/CHF, GBP/AUD, GBP/CAD, CAD/JPY, CHF/JPY, EUR/NZD, AUD/JPY, EUR/GBP, NZD/CAD, and the EUR/USD.
- 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/USD, GBP,NZD, EUR/JPY, GBP/CHF, GBP/AUD, GBP/CAD, CAD/JPY, CHF/JPY and the EUR/NZD
- All the pairs are mentioned as "Approved" pair in the "Currency Comparison Table".
- The AUD/JPY, EUR/GBP, NZD/CAD, and the EUR/USD are not mentioned in the Top 10 of the Ranking and Rating list.
- GBP/JPY with the EUR/NZD
- GBP/NZD with the EUR/JPY
It is recommended to read the page Currency score explained and Models in practice for a better understanding of the article. 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.