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Is Swiss Franc Overbought?

Is Swiss Franc Overbought?

Jeremy Wagner, CEWA-M, Head of Education

The increasing tensions in Korea have caused CHF, a perennial risk averse player, to strengthen earlier this week. On Wednesday, EUR/CHF sold off nearly 180 pips and USD/CHF sold off nearly 130 pips.

We think this Swiss Franc strength is over done as the technical patterns still have options towards higher levels in the USD/CHF exchange rate.

As a result, we turned bullish USD/CHF today in anticipation of a return to CHF weakness.

We answered the question earlier if USD/CHF can rally while US and Korean tensions are high. It appears USD/CHF may have completed a W-X-Y downward correction on July 21.

USDCHF at Support Trend Line

Zooming in on an intraday chart, prices appear to be respecting a simple support trend line. Notice that we are witnessing divergence on the Relative Strength Index (RSI) as prices hit the trend line. This suggests downward momentum is slowing.

Therefore, we are bullish USD/CHF with a stop loss below Friday’s low at .9582. We will set a first target at the previous swing high of .9770, which yields a positive risk to reward ratio. The second target, if we get there will be near .9900.

We are mildly bullish EUR/USD as well. Therefore, being long USD/CHF and long EUR/USD yields a long EUR/CHF exposure.

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Written by Jeremy Wagner, CEWA-M

Follow on twitter @JWagnerFXTrader .

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