Forex Forecast: Quant Vs. Chart Reading Analysis – October 25, 2015

Quantitative Forecast

Academic studies have shown that the most reliable way to determine future price movements from past price movements, is by use of momentum.

In the Forex market, a momentum study is best applied to the four major Forex currency pairs by simply checking whether the weekly close is above or below the weekly close 13 weeks ago.

If the price is higher, the statistical edge is in trading that pair long.

If the price is lower, the statistical edge is in trading that pair short.

On this basis, the quantitative momentum forecast for the edge during the coming week is as follows:

Technical Forecast

The question as to whether an experienced chart-reading technical analyst can outperform a simple momentum model warrants a live experiment. Looking at the weekly charts for each of the four major pairs, I will try to determine the line of least resistance, and forecast the directional edge using my own technical analysis.

On this basis, my technical analysis forecast for the edge during the coming week is as follows: 

Last week saw a strengthening of the USD across the board.

Summary

I believe that next week will see a mixed picture, with the market not necessarily driven by the USD. My technical forecast deviates from the quantitative forecast by 50%.

Next week, we will review how these forecasts performed.

Previous Forecasts

These forecasts have been running for 42 weeks.

In my last forecast on 18th October, the results were as follows:

The running totals of the forecasts after 41 weeks so far are as follows:

Both forecasts have performed negatively to date, due mainly to the very sharp and historically unprecedented counter-trend moves in the CHF over recent months.