The recent advance in EUR/CHF to its highest levels since the Swiss National Bank abandoned its floor of 1.20 Swiss Francs per Euro in January 2015 looks to be running out of steam and further losses are now on the cards.
Looking first at the daily chart, the decline of the past two days – largely due to the strength of the safe-haven Franc on the political tension between the US and North Korea and the Kurdish independence vote in Iraq – has taken the cross near to the three-month uptrend support line. Any further drop to below that line, currently at 1.1384, can be expected to extend to the September 8 low near 1.1360 and even to the lows near 1.1260 touched on August 9 and August 18.
Moreover, the new high just above 1.1620 touched last Friday was not accompanied by a new high for the 14-day relative strength index (RSI), a divergence that points towards the climb having run out of steam.
Chart: EUR/CHF Daily Timeframe (June 7 – September 26, 2017)
Similarly, on the weekly chart, there was no new high for the 14-week RSI when the price touched 1.1620 – another pointer towards the decline having further to go.
Chart: EUR/CHF Weekly Timeframe (June 27, 2016 – September 26, 2017)
The principle risk to this scenario is an easing of political tensions that reduces demand for haven assets like the Swiss Franc and lifts EUR/CHF back above last Friday’s 1.1620 high. That would put the 1.20 level back in place as a long-term target and just below 1.1620 would therefore be a good place to put a stop.
--- Written by Martin Essex, Analyst and Editor
To contact Martin, email him at martin.essex@ig.com
Follow Martin on Twitter @MartinSEssex
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