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USD/CHF Technical Analysis: Range Breaks into Megaphone Pattern

USD/CHF Technical Analysis: Range Breaks into Megaphone Pattern

2016-06-01 17:25:00
James Stanley, Strategist
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Talking Points:

  • USD/CHF Technical Strategy: Short-term range seeing support break; intermediate-term trend still bullish.
  • USD/CHF continues to show range-like qualities with support and resistance defined by various Fibonacci levels.
  • SSI - If you’re looking for trading ideas, check out our Trading Guides. And if you want something more short-term in nature, check out our SSI indicator.

In our last article, we looked at the range that had begun to build in USD/CHF as price action remained very near a series of longer-term Fibonacci values. The level at .9948 was especially interesting, as this is the 38.2% retracement of the secondary move in the pair, and this ended up setting the swing-high in USD/CHF just a few days after that last article.

But price action stalled at that Fibonacci retracement, and later put in a ‘lower-high,’ before ultimately breaking through previous support at .9887, which had done a fantastic job of catching support in that previous range. This increasing range of prices on both sides of the previous zone brings on a ‘broadening pattern’ that is often called a megaphone. The megaphone will often show up as a range transitions to a breakout as traders test support and resistance boundaries.

Traders can use this pattern to highlight a potential breakout in the pair as the range appears to finally be giving way. With Non-Farm Payrolls less than a couple of days away, this could be ample opportunity for traders to finally leave that prior range in the dust.

To trade the megaphone, traders can look for a break on either side of the formation in the effort of anticipating the new directional trend. The current structure in USD/CHF has showed a recent support break followed by short-term resistance showing at that prior support level of .9887. But before triggering short positions, traders can look for a break below .9847 to indicate continuation potential. If .9847 gives way, traders can then look for resistance around old support, such as .9780 (prior swing low) or .9887. On the upside, traders would likely want to wait for a confirmed break above .9960; at which point they can look to buy ‘higher-low’ support after a fresh higher-high comes into the equation.

USD/CHF Technical Analysis: Range Breaks into Megaphone Pattern

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

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

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