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Talking Points:
- USD/CHF Technical Strategy: Longer-term range, short-term price action breaking-lower.
- Price action finally ran into the vaulted resistance zone between .9949-1.0000; and this can open the door for short Swissy positions with the aim of trading the range.
- An analyst pick is active after being issued on Thursday of last week based on the setup we’ve been discussing: Short Swissy at Market.
- If you’re looking for trading ideas, check out our Trading Guides.
In our last article, we looked at the five- month range building in USD/CHF. Of particular interest with that range-formation was a zone of resistance around .9949, which is the 61.8% Fibonacci retracement of the 2010/2011 major move. This level had given two strong resistance inflections during the prior five months of this range’s life, and a subsequent inflection could open the door for a ‘triple top’ formation.
Last week, price action burst up to this level of resistance, continuing to run-higher and towards the widely-watched parity figure in the pair. Price action was met with resistance just shy of 1.0000-even, as sellers came in to aggressively push prices lower. This left last Tuesday’s daily candlestick in USD/CHF showing as a ‘pin bar’ formation; short for ‘Pinocchio bar,’ which is an extended wick (that’s at least the size of the candlestick’s body) that ‘sticks out’ from recent price action. Pin bars can be fantastic reversal formations as they indicate a quick breach of resistance that was soundly met with sellers. This also had the luxury of clearing out stops of prior short positions in the market that might’ve been wedged above that very obvious level of resistance at .9949. Stops on short positions, of course, are orders to buy, and this buying pressure from stops being triggered could’ve easily helped to further volley price action higher beyond .9949. This is why traders will often hear of ‘blow off’ moves, in which a quick break of resistance becomes a bit more extended, as sitting stop orders (to buy) get triggered, bringing even more buying demand into the market, albeit temporarily, as those stops get cleared out.
Since that test of prior resistance last week, price action in USD/CHF has been angling lower, and a quick break of short-term support on Friday of last week may be opening the door for ignition of the bearish swing.
Traders can investigate bearish positions in USD/CHF with the goal of filling in the other side of the range. Traders looking to treat the move aggressively would likely want to look at stops above the prior zone of resistance at the .9950-marker. This can open the door for profit targets and a break-even stop move with support at the .9821 level, after which targets at .9750 and then .9682 could become attractive.
For traders looking to treat the move more conservatively, stops above the parity figure can be investigated. The downside of this wider stop is that support at .9821 would be less than a 1-to-1 risk-reward ratio, so traders using the more conservative stop would likely want to look at initial targets a bit deeper, perhaps as low as .9750 as this could offer an approximate 1-to1.45 risk-to-reward ratio.
Chart prepared by James Stanley
--- Written by James Stanley, Analyst for DailyFX.com
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