USD/CHF Technical Analysis: Swissy Sets New 5-year High

2015-11-27 15:36:00

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Talking Points:

USD/CHF Technical Strategy: Flat. Long setup off of parity-support in previous article has met first two targets.
The fundamental direction of the pair is really pointing in one direction, as the US walks towards the first rate hike in nine years while the Swiss National Bank investigates even more action to weaken the Franc.
Short-side reversal setups can continue to be unattractive given the strength being seen in USD/CHF. If you want to fade USD-strength, there are likely far better venues to trade that theme.

In our previous piece on USD/CHF, we noted the continued strength in the pair as the top-side breakout in the Swissy continued higher. After the pair broke out of the 7-month long symmetrical wedge formation last month, USD/CHF has continued to make higher-highs and higher-lows; catching near-term resistance incrementally at each higher level. At first it was the .9500 region, as we had outlined towards the end of October. This is when the Swiss Franc began to get really week after Mario Draghi had pledged that the European Central Bank would investigate European QE at their next policy meeting in December. And while Mr. Draghi may not have much to do with the Franc directly, the tight trading relationship between Switzerland and Europe allude to the fact that the Swiss National Bank likely won’t sit idly by while the Euro weakens against the Franc, for that could completely envelop the Swiss economy.

The next major zone of relevance was the .9950 region in USD/CHF, as this was a confluent zone of resistance with a major, long-term Fibonacci retracement just 1.5 pips below this psychological level. As we had noted, .9850 became a significant level of interest, as a Daily Doji preluded a morning star setup with a higher-low off of this level after catching near-term resistance at that confluent .9950 level.

After .9950 gave way, we had to contend with the level of parity. This is a ‘major’ psychological level that can have a tendency to dramatically change directional flow, but the blowout NFP report from November helped the Swissy make short work of any resistance at 1.0000-even. After that huge run, we saw prices snap back to catch support off of this theoretical resistance value the following week. We highlighted the parity support play two weeks ago.

After parity has given way, the Swissy hasn’t stopped its march higher. We’ve caught some very near-term resistance at the 1.272% Fibonacci extension of the previous major move, and thus far on the day – we’re seeing near-term resistance at the 1.618% extension in the 1.0300 neighborhood.

Moving into next week, we could see the setup find an extension to this trend, but given the veracity of the move of the past month, traders should exercise caution in adding new long positions. As we outlined in our previous article, we’re essentially trading in rareified air on USD/CHF, as we haven’t seen prices in this zone for over five years.

So, rather than chase, traders can wait for prices to pull back to a previous resistance level to investigate a trend-continuation entry to the long-side. And with a pivotal ECB meeting on the docket for next Thursday, we may have an environment of risk-tightening ahead of the announcement that could allow for such an entry.

Potential areas of re-entry could be seen at 1.0239, which was the previous 2015-high in USD/CHF. This level had given near-term resistance on Wednesday and Thursday of this week, and this could come in as a very proactive level of support should price action show as such in the early portion of next week. Below 1.0239, we have potential support at 1.0200 flat, and 1.0125, both of which are psychological levels that have exhibited a tendency for near-term support/resistance. And lastly, we have the level of 1.0077, which is that 127.2 Fibonacci extension that gave the Swissy five days’ worth of resistance earlier in November.

If prices break back below psychological parity support, the bullish extension play will not be nearly as attractive… so for re-entries, stops below parity become a very attractive level for risk management.

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