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USD/CHF Technical Analysis: If You Want to Get Long USD – Look at Swissy

USD/CHF Technical Analysis: If You Want to Get Long USD – Look at Swissy

2015-12-14 19:04:00
James Stanley, Strategist
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Talking Points:

  • USD/CHF Technical Strategy: Flat. Top-side reversal setup identified.
  • USD/CHF has faced precipitous selling after setting a new five-year high two weeks ago.
  • The selling in Swissy has been severe, but given the veracity of the previous up-trend, the motive for continued bullishness could compel traders to look at top-side reversal formations in the coming week.

In our last article, we looked at the continued bullishness in USD/CHF as the Swissy had just set a new five-year high. And as we had advised (and as we had also looked at in the previous article), traders should exercise caution if looking to press the long side of USD/CHF.

In the past two weeks, USD/CHF has seen significant selling as we’ve fallen below numerous support levels (many of which were prior resistance on the way up). Much of this drive has been USD-weakness as we near a pivotal FOMC meeting in which much of the world is expecting the Fed to kick rates higher. But nothing fundamentally has changed… The Fed is still expected to hike rates, and the Swiss National Bank is still looking to weaken their own currency. And while relying on the Swiss National Bank may be a disastrous plan, the technical setup for top-side trend resumption is available.

For traders that want to get long USD ahead of FOMC, this could be a prime way of doing so. Today’s bar isn’t yet closed, but thus far we’re seeing a Doji formation just above a long-term Fibonacci support value at .9781. This is also where we’d seen prior resistance come in before that prior up-trend hit its apex. Should today’s low hold, then we’d have the possibility of playing a top-side reversal ahead of a heavy week of US news, and this could be attractive for strong risk-reward plays.

Traders can look at placing stops below the .9781 support level, which is the 76.4% retracement of the ‘secondary’ move in USD/CHF, taking the 2015 high to the 2015 low. For those that want to treat the position a little more conservatively, they can investigate stops below .9749, which is the 76.4% retracement of the previous major move in the pair (which was just validated by resistance showing at the 1.618 extension).

This could open the door for targets at .9948 (the 61.8% retracement of the ‘big picture move’), followed by parity (psychological support/resistance), then 1.0077 (the 27.2% extension of that prior major move), 1.0239 (previous 2015 high) and then 1.0300 (most recent swing high + 61.8% extension of prior major move). This could allow a top-end 1-to-3.5 risk-reward ratio with that wider, more conservative stop, and when sitting ahead of a major onslaught of data, such a setup could be very attractive.

USD/CHF Technical Analysis: If You Want to Get Long USD – Look at Swissy

Created with Marketscope/Trading Station II; prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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