Forex Strength And Comparison: July 2016
Forex Technical Analyst Trader | Jul 06, 2016 04:52PM ET
Welcome to my "Strength and Comparison" article for the coming month, the article "Ranking, Rating and Score" has also been published for this month.
For analyzing the best pairs to trade looking from a longer term perspective the last 12 months currency classification can be used in support.
This was updated on 3 July 2016 and is provided here for reference purposes:
Strong: USD / JPY. The preferred range is from 6 to 8.
Average: GBP, CHF, NZD. The preferred range is from 4 to 5.
Weak: EUR, AUD, CAD. The preferred range is from 1 to 3.
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12 Months Currency Score Strength
The 12 Months Currency Strength and the 12 Months Average are provided here below. This data and the "12 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 month, we perform several checks to avoid this.
- First of all the strength over a period of 12 months. See each row for more information.
- Then the 12 months average, see the last row called "Avg. 12 M."
- The number of months 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 "12 monhts Currency Classification" chart of each currency is also consulted and compared.
The CHF is a strong Currency but getting weaker lately with a Score of 4,66. The GBP is classified as an average currency and having currently a score of 4,5. It is getting close to the CHF and in the last 12 months each were an equal amount of 6 months being stronger. Last month was clearly a winner for the GBP, see for more information the chart here below. These currencies may switch places in the classification in the coming period.
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.
Get The News You Want
As can be seen in the "Currency Strength Table" here above the CHF has lost strength lately and is at the same 12 Months Average score as the NZD. For that reason the CHF changed classification from "Strong" to "Average". The CHF was also only 5 months stronger in the last 12 Months comapred to the NZD. When looking at the 12 Months Average scores it is clear to see that the USD and the JPY, being strong currencies, are having a much higher score being above 6. Here below you can see the last 12 Months Currency Score Graph with the strong currencies, USD and the JPY, and the CHF which is now an average currency.
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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 month you can read the article "Forex Ranking, Rating and Score" which is published every month 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 3 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 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 12 months and also simultaneously taking the current trend into account. By coloring the currencies in the X and Y axis according to their Classification, see "Forex Currency Score Classification for January", 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".
- 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 which are 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 month.
- Even though they are in the same classification when looking at the 12 months 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.
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Putting the pieces together
Based on the last "12 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 "12 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: GBP, AUD and the NZD.
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 Weekly and Monthly chart. We will look at these ones here in a bit more detail.
- When analyzing the Monthly and Weekly charts the best pairs for the coming week seem to be the:
GBP/JPY, GBP/NZD, GBP/USD, EUR/JPY, CAD/JPY, GBP/CHF, AUD/JPY, EUR/NZD, CHF/JPY, USD/JPY, NZD/CAD and the NZD/JPY. - 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, GBP/USD, EUR/JPY, CAD/JPY, GBP/CHF, AUD/JPY and the EUR/NZD.- All the pairs are mentioned as "Approved" pair in the "Currency Comparison Table".
- The CHF/JPY, USD/JPY, NZD/CAD and the NZD/JPY are not mentioned in the Top 10 of the Ranking and Rating list.
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The article "Ranking, Rating and Score" published this weekend contains the following interesting pairs:
- GBP/JPY with the EUR/NZD
- GBP/NZD with the EUR/JPY
All 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 the list and the combination with the position in the "Currency Comparison Table" and how the charts are looking.
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Besides this article I also use the Forex "Ranking, Rating and Score" which is also available once a week on my blog at FxTaTrader.com. In the article "Ranking, Rating and Score" we look in more detail at the absolute position of the currencies and pairs.
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.
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