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GBP/CHF Descending Channel Provides Swing Trading Opportunity

GBP/CHF Descending Channel Provides Swing Trading Opportunity

2011-03-29 20:29:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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The GBP/CHF pair has continued in its long-term depreciating trend since 2009, with significant follow-through occurring in 2010 and well into the first few months of 2011. The pair touched its range top as recently as the middle of February, and completed the most recent impulse wave down in its channel, erasing all of the gains the GBP/CHF pair had seen in 2011 in the process. In February, the pair touched as high as 1.5700 before hitting a low near 1.4273 in the middle of March. It was noted in early March that a smaller, ascending sub-channel had emerged over the past three-months, and while the pair did appreciate, it was unable to breakthrough significant Fibonacci resistance expressed in longer-term trends. At the last time the GBP/CHF pair was discussed, I noted that “With the short-term technical indicators tailing off Pound-favor, the GBP/CHF pair has been unable to follow through on its double-bottom pattern.” I further suggested that “A break below the 38.2 Fibo exposes 1.4900, a significant level of psychological resistance which the pair was unable to break on three distinct attempts this year so far. Should the pair break this, the next target is the 23.6 Fibo, and then the yearly low set on the first trading day of 2011. With the Slow Stochastic oscillator on the 6-hour chart having recently issued a sell signal, as well as the MACD Histogram differential tailing off of its bullish divergence, our bias remains to the downside.” The trade, as recommended, resulted in a 621-pip gain. Now, with the pair hovering above its range bottom, another swing trading opportunity has emerged for traders to collect profits.

Levels to Watch:

-Range Top: 1.5350 (Trend)

-Range Bottom: 1.4470 (Trend)

Original Chart (from March 9, 2011)

GBPCHF_Descending_Channel_Provides_Swing_Trading_Opportunity_body_Picture_1.png, GBP/CHF Descending Channel Provides Swing Trading Opportunity

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Updated Chart (from March 29, 2011)

GBPCHF_Descending_Channel_Provides_Swing_Trading_Opportunity_body_Picture_10.png, GBP/CHF Descending Channel Provides Swing Trading Opportunity

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Suggested Strategy

  • Long: Place an entry at 1.4839 (20-SMA)
  • Stop: Set the stop to 1.4470 (369-pip risk (Range Bottom, 0.00 Fibo)
  • Target: The first target is 1.5217 (50.0 Fibo, move up stop to 1.5086 (50-SMA)), second target is 1.5393 (61.8 Fibo)
  • Timeframe: 7 to 14 days

Trading Tip After falling to our first target of 1.4785 and ultimately our final target of 1.4398, the GBP/CHF pair appears to ready to begin its corrective wave back towards the top of its descending channel that it has carved our since the beginning of November. Despite breaking below the bottom range, the pair quickly rebounded, unable to post two consecutive closes below the descending trend line. The pair remains trading below its 20-SMA, but a break above it would also represent a break above the 23.6 Fibo on the November 18 to December 30 move. Momentum has shifted to the upside with the RSI rising on the daily chart, and the MACD Histogram diverging bullish, with the differential widening. This is confirmed by technical levels on the 6-hour chart, where the RSI is rising as well; the MACD Histogram has also issued a bullish divergence; the bullish momentum is confirmed by a Slow Stochastic oscillator that issued a bullish signal earlier today, with the %K now greater than the %D at 50 and 41, respectively.

Event Risk for the U.K. and Switzerland

Much data came out today that could affect the GBP/CHF pair, though some event risk remains on the horizon for the remainder of this week. However, with another ten events due from both countries over the next few days, volatility could be sparked upon the release of these significant events. All but three are from the U.K., which means stronger-than-expected data could boost the pair.

U.K. – More significant data is expected out of Britain the remainder of the week, with housing prices data representing the most significant release, on Thursday. Before that, however, comes the GfK consumer confidence survey, which is expected to deteriorate further amid a softening economic environment, characterized by fading growth and increasing price pressures.

Switzerland – Following the decline of the UBS consumption indicator for February, which was released before today’s North American session, tomorrow’s KOF Swiss leading indicator for March could come in less than expected, leading to GBP/CHF weakness. With two more significant events due on Friday, which are forecasted to show the Swiss economy slightly eroding, Swiss-crosses could face weakness.

Data for March 27 to April 1

Data for March 27 to April 1

Date

U.K. Economic Data

Date

Switzerland Economic Data

Mar 30

CBI Reported Sales (MAR)

Mar 30

KOF Swiss Leading Indicator (MAR)

Mar 30

GfK Consumer Confidence Survey (MAR)

Apr 1

Retail Sales (Real) (YoY) (FEB)

Mar 30

Nationwide House Prices n.s.a. (YoY) (MAR)

Apr 1

SVME-Purchasing Managers Index (MAR)

Written by Christopher Vecchio, DailyFX Research.

To contact the author of this report, please send inquiries to: research@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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