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USD/CHF Technical Analysis: Long USD Setup Available Against CHF

USD/CHF Technical Analysis: Long USD Setup Available Against CHF

2016-02-08 17:15:00
James Stanley, Currency Strategist
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Talking Points:

  • USD/CHF Technical Strategy: Previously long, 4 targets hit, stop hit on remainder; long re-entry setup identified.
  • The US Dollar had a brisk pullback last week and this hit USD/CHF; but this may be a re-entry opportunity.
  • The big driver for USD this week will likely be Ms. Yellen’s testimony in front of Congress on Wednesday and Thursday; should she reiterate the Fed’s plans for 2016 rate hikes, USD could catch a strong bid.

In our last article, we looked at the gyrating up-trend in USD/CHF. At the time of that article Swissy had been on a rather consistent six-week up-trend as USD strength became a pervasive theme around that December rate hike from the Fed. As we had warned, the daily candlestick setup for last Monday was a Doji off of resistance, and this often preludes a swing in the other direction; so last week was not the time to press the up-trend in USD/CHF.

Since then, we’ve seen considerable USD-weakness as prospects of 2016 rate hikes out of the United States continue to diminish; but the deviation in rate expectations between the US and Europe (and in-turn Switzerland) continues to exist. And further to that point, we have no evidence as of yet that the Fed will, in fact, back down. That USD weakness from last week came from a speech given by Mr. William Dudley of the New York Fed, and here merely noted that continued USD-strength could bring recessionary forces to the US economy.

We discussed the prospect of continued USD strength and what that might entail in the article, The Real Bain of Equity Markets is Actually a US Dollar Problem, and in that article we looked at the fact that USD will likely remain bid until the Fed backs down from the prospect of tighter policy in 2016. And while it may seem simple for the Federal Reserve to just say ‘ah, forget about those rate hikes,’ there are likely other considerations that the bank is looking at that makes this not such a clear-cut decision.

Ms. Yellen speaks in front of Congress on Wednesday and Thursday of this week, and rate hikes/trajectory of lift-off will likely be a primary topic of discussion during her testimony; and that could bring considerable volatility into the US Dollar.

Traders looking to get long USD ahead of that testimony can look to USD/CHF, as we’ve run down to a previous level of support that could offer an attractive risk-reward ratio in trading in the direction of the previous trend. Traders can look to lodge stops below .9781, which is the 76.4% retracement of the secondary move in the pair, taking the January 2015 high to the 2015 low. This level had provided the swing-low in December just ahead of that FOMC rate hike, and traders can look to lodge stops below this potential support level to take on ~110 pips of risk.

On the profit target side, the price of parity could offer a roughly 1-to-1 risk-reward ratio with current prices, and this could be a fantastic opportunity to manage up risk by moving the stop to break-even, and perhaps scaling out of a portion of the lot. Just above that at 1.0077 we have the 1.272% extension of the previous major move, and at 1.0142 we have a previous swing-low that could be an attractive scale-out level. At 1.0239 we have that January high, as well as the most recent swing-high, and just beyond at 1.0300 we have the 1.618 extension of that prior major move.

USD/CHF Technical Analysis: Long USD Setup Available Against CHF

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

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

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