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USD/CHF Technical Analysis: Swissy Smashed as USD Crumbles

USD/CHF Technical Analysis: Swissy Smashed as USD Crumbles

2016-08-01 18:42:00
James Stanley, Strategist
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Talking Points:

  • USD/CHF Technical Strategy: Bullish price action reversed aggressively after last week’s Fed, U.S. GDP
  • As USD-weakness has permeated markets, Swissy has put in an outsized fall; but did tag our second target at .9948 before reversing.
  • 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 bullish channel that USD/CHF was continuing to trade within. And while this was a relatively-young channel at only approximately three weeks as of our last article, the drivers behind the move were rather clear: U.S. rate hike expectations were driving a stronger Dollar, and given that the Swiss National Bank had already come out with spot market intervention around the Brexit referendum to quell a strong Franc, a relatively clean trend-channel began to show in USD/CHF.

But last week was not kind to U.S. rate hike expectations. On Wednesday, we heard from the Federal Reserve, and while the bank did add a slightly hawkish tweak to their statement, producing a quick rush of USD strength to tag the longer-term Fibonacci level at .9948 before turning lower. But the net takeaway was USD-weakness as investors ramped up the expectation for the Fed to continue doing what they’ve been doing (passively supporting risk markets). And then on Friday, an abysmal GDP report provided another douse of cold water on near-term rate expectations; as the prospect of the Federal Reserve hiking and ‘normalizing’ rate policy in the face of negative data shot those rate expectations even lower, pulling the U.S. Dollar along in tandem.

As of this writing, near-term price action is finding resistance around old support in the .9700-neighborhood, which is the 50% Fibonacci retracement of the May-November, 2015 major move; while also being the June ‘swing-low’ in the pair. And while this is bearish, traders would likely want to question the potential of how deep this may run, as a longer-term batch of support around the .9500-area may stem near-term declines. More interesting would be support showing above the prior swing-low of .9520, as this could offer a longer-term bullish setup in anticipation of playing the expected continued divergence between US and Swiss rate expectations. For now, that divergence is going the other direction as U.S. rate hike expectations are getting priced further-and-further into the future

USD/CHF Technical Analysis: Swissy Smashed as USD Crumbles

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

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

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