USD/CHF Technical Analysis: Parity Sets Support

2015-11-12 20:41:00 James Stanley

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Talking Points:

USD/CHF Technical Strategy: Flat. Long setup in previous article has met target.
USD-strength has extended the bullish run in USD/CHF, but a pullback throughout this week could open the door for top-side continuation plays.
The Doji mentioned in our previous article led to a Morning Star setup in the pair as we noted, and the bullish reversal has moved by over 300 pips since that writing.

In our last article, we noted the Daily Doji that was printing on November 2nd, and how this may prelude a potential morning star formation that could allow for top-side, trend-continuation entries in USD/CHF. Morning stars and evening stars can be prime price action formations for those looking to enter in the direction of a trend. Simply wait for a retracement, look for the doji, and if the following bar confirms the formation, then the reversal play is ready. This is exactly what happened in USD/CHF, as the follow-through movement on November 3rd confirmed the morning star, and prices continued ratcheting higher.

This was an attractive entry for a multitude of reasons, least not of which was the fact that the support for that Doji (and morning star formation) was taking place right at a key support level of .9842. This price had been the previous swing high set on September 25th, and this swing also helped us confirm the prior symmetrical wedge formation that we were discussing previously.

Last week’s blowout NFP report is what really gave the USD/CHF a strong move, as we rocketed beyond parity and directly into the 27.2% Fibonacci extension of the most recent major move (at 1.0077), and this is setting the groundwork for near-term resistance. The first four days of this week have seen a slight pullback in the USD-strength move, but given that the US Dollar had risen by approximately 2.5% in the previous three weeks, this makes logical sense. But perhaps more interestingly, while the USD sell-off has continued to hasten to the downside, USD/CHF is now catching support at a very interesting price level of parity.

Parity, of course, is 1.0000 even, and this is the ultimate psychological level. This can assist with the trader’s stance moving forward. Traders can look to lodge stops below this support level, looking to get stops below .9989 (the low of today before buyers came in to push prices back above parity), with an eye towards that previous resistance zone of 1.0077. For those that want to treat this more conservatively, the prior swing high at .9948 can help with setting risk, as this is the 61.8% retracement of the ‘big picture’ move in USD/CHF, taking the high from 2010 and the low of 2011.

If 1.0077 gets taken out, the next level of interest is at 1.0126, as this is the 8-month high in the pair, followed by 1.0239 (the 2015 high).

With this level of exuberance in the US Dollar, short plays in USD/CHF could prove challenging. Should prices break back below .9781, the short-side may become interesting again.