USD/CHF Technical Analysis: Setups within the Symmetrical Wedge

2015-10-13 17:14:00

To receive James Stanley’s analysis directly via email, please SIGN UP HERE

Talking Points:

USD/CHF Technical Strategy: Flat, Long setup identified.
USD/CHF has continued to trade within the symmetrical wedge discussed in our last piece.
USD-weakness has driven USD/CHF lower, but a weak Franc may offer mean-reversion setups for traders looking to buy USD.

In our last piece, we looked at the most recent resistance inflection off of the upper trend-line that’s defined USD/CHF price action since March of this year; as part of the bigger picture symmetrical-wedge congestion pattern.

Since that inflection, we’ve seen USD-weakness permeate across markets as investors have been pricing-out that first rate hike from the Fed; and accordingly USD/CHF has gyrated below support levels at .9681 and .9600. But the fact that USD/CHF hasn’t fallen further, as dollar-weakness appeared more pronounced against other currencies, highlights the fact that this could be a prime-candidate for reversal plays in the US Dollar as the Swiss National Bank is doing what many feel the Federal Reserve should be doing (negative rates). This could lead to additional Franc-weakness as the debate around US-rate hikes continues.

The current setup could look to stop placement below .9498, which is the 61.8% Fibonacci retracement of the ‘secondary move’ in the pair, taking the 2015 high and low. This could open up targets at .9681, which is the 50% retracement of the ‘big picture’ move, taking the 2008 high to the 2011 low, and then .9781 (76.4% retracement of the secondary move). This could open up a better than 1-to-1 risk-to-reward ratio on the first target and better than a 1-to-2 on the second.

Should price action break above .9781, then we’d have a break of the upper trend-line of the symmetrical wedge, and this should be construed as bullish with targets cast towards parity (1.0000), and then 1.0126 (March high) and then 1.0239 (2015 high).

Alternatively, breaks below .9500 could be construed bearishly. Traders may want to wait for a break of .9474 before jumping on the short-side as there are two Fib levels within a 25-pip range. The 61.8% level mentioned earlier is at .9498 as well as the 38.2% retracement of the most recent major move at .9474. Should price action breach both of those levels, targets could be set to .9320 (23.6% of the most recent move), .9270 (50% retracement of the secondary move), and then .9070 (nine-month-low).

(click below image for larger view)