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TECHNICAL ANALYSIS

A Technical Preview of the Major Currency Pairs for 2017

A Technical Preview, Major Currency, Pairs, 2017, Technical Analysis, fx trader, forex major currencies

When looking back at 2016, it’s fair to say that we’ve experienced some unexpected and profound political events that will long be remembered. From the election of Donald Trump to the aftermath of Brexit, the world in 2017 is certainly going to be a different place.

But while we’re all at the mercy of global events, traders should still attempt to approach their long-term trading strategies with a sense of clarity. In this article, I’ll attempt to do just that by explaining my current technical analysis of the major currency pairs and what I expect from them in 2017.

Why technical analysis?

Before we explore my analysis, I think it’s worth taking a step back and reminding ourselves of why a technical-based approach can be advantageous in a global climate of uncertainty.

Firstly, let’s take a look at why traders choose to use technical analysis in Forex. By using this methodology, traders are hoping to predict currency price movements that will happen in the future, just by looking at what has gone before. By studying graphs and charts over different time-frames, traders can identify historical patterns, which can then give clues as to how price might move in the future. While it’s not an exact science, technical analysis (when applied) properly can produce excellent results. As a starting point, it’s important for all Forex traders to remember the following cornerstones of technical analysis.

Cornerstone #1: currency price incorporates all available market information

Fundamental analysis often gets criticised by those who favour a technical-based strategy because the former struggles to quantify the mood of the markets and global news events. However, from a technical viewpoint this isn’t an issue, as the current price of a currency pair is thought to be absolutely accurate at that given time. For example, if the markets are anticipating an economic data release from the central bank, technical traders will believe that anticipation is reflected in the current price of the relevant currency pair.

Cornerstone #2: price movements occur in patterns

Technical traders believe that the price of currency pairs move in predictable trends, in between shorter periods when movements in price follow no pattern. The best technical traders are able to distinguish between these periods effectively, and thereby place trades which exploit the movements they can predict.

Cornerstone #3: history repeats itself

This is a key belief of technical traders - that history repeats itself. There’s phenomenon that fuels this belief called ‘herd mentality’. It involves all the participants trading the financial markets and is based upon this premise: most of us react in the same way to any given situation. For example, the election of Donald Trump has caused investors to move away from government bonds and into private equities - because they share the view that his policies will be inflationary in nature. This is why we can make judgments as to how the market as whole will impact currency price.

Cornerstone #4: focus on the what, not the why

This is an absolutely vital rule of technical analysis. Why the price of a currency pair changes doesn’t matter, it’s ‘what’ the currency price is which is of substantial importance and its movement history. Remember, technical traders view the current currency price as absolute (incorporating all information and sentiment), so trying to identify the reason as to why movements happen is largely irrelevant to a technical-based Forex trader.

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