USD/CHF Technical Analysis: Trading in Rarefied Air

2015-11-16 18:43:00 James Stanley

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Talking Points:

USD/CHF Technical Strategy: Flat. Long setup off of parity-support in previous article has met first target
USD-strength has brought prices right back up to resistance, but after three of the last five days have seen selling in this zone, traders are cautioned to wait for a cleaner setup to materialize before chasing the long-side.
Short-side reversal setups can be unattractive given the continued strength whilst trading near resistance.

In our last article, we mentioned the top-side breakout in USD/CHF after the level of parity (1.0000 even) was broken by the surging up-trend of USD-strength. Parity is the ultimate psychological level, and as such, has a tendency to produce profound support or resistance anytime this price is met. Last week was no different: After ascending above parity on NFP-Friday, the first four days of last week saw price action pulling back after we had caught new resistance at 1.0077, which is the 27.2% extension of the most recent major move. This moved prices right back into that zone of parity, and support came in shortly thereafter to shoot prices to a new high of 1.0102.

But to open the week, the setup looks precarious; and given recent USD trends, may be daunting for trend-continuation setups at current levels. Alternatively, traders can look to trade the move with inside or outside price action to bring on a conditional setup. As in, for those wanting to hit the market to the long-side, they can establish pre-defined criteria for which they can trigger that position. To trade this move outside, traders would want to see new highs to illustrate that buyers are going to be able to continue pushing prices higher. Should this take place, the zone of previous resistance in the 1.0077 area could be attractive for top-side continuation. This zone has given resistance for three of the past five trading days, and as will often happen in uptrends, we may be able to find new support in the vicinity of old resistance. Should this happen, traders can look to treat the long-move with targets at 1.0126 (the 10-month high in the pair), followed by 1.0239 (the 2015 high). After that, we’re in a veritable no-man’s land of resistance, as there has been a dearth of recent price action between 1.0239 and 1.0500. By default in these situations, traders can cast interest towards the next major psychological level, so in this case, 1.0500 could become the next theoretical level of resistance; but it’s important to note the ‘theoretical’ part of that statement… without any recent price action these levels are just theory.

On the other hand, short setups can still be unattractive given the veracity of strength seen in USD/CHF. For those that want to go short USD, there may be numerous other areas of attractiveness. For those that really want to trade a short-side reversal in USD/CHF, the level of .9781 could open the door for short-side trend strategies, as this would break prices back below longer-term resistance values. Until then, this is a bull market. Treat it as such: Look long or don’t look at all, unless you can really manage the risk on those short-side reversal plays.