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EUR/CHF Tests Price Channel Resistance

EUR/CHF Tests Price Channel Resistance

Walker England, Forex Trading Instructor

The Swiss Frank has proven to the market time and time again that it is currently one of the world’s strongest currencies. The EUR/CHF pair has been in steady decline since its height in 2008 at 1.6827. Dropping down over 5000 pips, the pair has trended down to the May 2010 low at 1.1803.

Many economists believe a strong Frank has helped Switzerland’s import/export based economy expand. This may seem counter intuitive at first but a strong Franc has allowed Swiss businesses to lower costs on imported capital goods. This fact is backed up with Swiss GDP increasing 2.4% over the first quarter of 2011. As the Swiss National Bank (SNB) signals no sign of intervention on the currencies behalf, it is expected that the trend on the EUR/CHF pair is set to continue.

Price Action

Taking price into a 1H chart, we find the EUR/CHF traveling in a well defined price channel in the direction of its overall trend. Currently price is making a move to the upper bound of this channel near the 1.2025 price handle. RSI is a great indicator for trading price channels. The indicator is reading overbought at the present and a cross below the 70 level would indicate a resumption of the trend. If price continues to trade over resistance, this level will become temporary support until the trend resumes.

Trading Opportunity

My preference is to sell two lots of the EUR/CHF pair against resistance near 1.2025. RSI (14 periods) will be used as our trigger and an entry will be made once our indicator crosses below the overbought level (70). Our first lot will use the lower bound of the channel for our limit at 1.1750. A stop should be set at half the range near 1.2150 for a 1:2 Risk Reward ratio.

Lot two should utilize the same entry trigger and stop as our first position. When lot one reaches its limit target (1.1750), the stop for lot two should be moved to break even (1.2000). At this point, a limit for lot two will be placed at an extension of our range near 1.1500 awaiting a breakout.

Walker England contributes to the Instructor Trading Tips articles. To receive more timely notifications on his reports, email to be added to the distribution list.

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