Forex Strength And Comparison For October 2016
Forex Technical Analyst Trader | Oct 03, 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. When looking at the Currency Strength in the table here below we can see that the CAD lost a lot of strength in the last 4 months. The NZD and the AUD became stronger in the last 4 months. For more details read both of my articles where the relevant Charts and Tables are provided.
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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.
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 30 September 2016 and is provided here for reference purposes:
Strong: USD, JPY, NZD. The preferred range is from 6 to 8.
Average: AUD, CHF. The preferred range is from 4 to 5.
Weak: EUR, GBP, CAD. The preferred range is from 1 to 3.
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The Strong Currencies
In the last 4 Months the NZD became stronger being the second stronger currency after the JPY. According to the Currency Strength table above the Avg. 12 M. of the NZD is close to the USD which is a strong currency. The Score of the NZD is also far from the other average currencies. For that reason the NZD changed classification from Average to Strong.
Here below you can see the Monthly Currency Score Chart with 2 years data as a reference.
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The Average Currencies
In the last 4 Months the AUD became stronger and it has at the moment a higher Avg. 12 M. than the CHF which is an Average Currency. The Score of the AUD is also far from the other weak currencies. For that reason the AUD changed classification from Weak to Average.
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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 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 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 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 month.
- 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 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 category 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 "12 Months currency classification" and the "Currency Comparison Table" the most interesting currencies for going long seem to be the:
JPY, NZD and AUD.
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, CAD and EUR.
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. There are no curencies at the moment with a high deviation.
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 Monthly chart. For the coming month these seem to be: GBP/JPY, GBP/NZD, CAD/JPY, EUR/JPY, GBP/USD, NZD/CAD, AUD/CAD and EUR/AUD
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Besides this article I also use the Forex "Ranking, Rating and Score" which is also available once a month 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 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 month.
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