USD CHF coiling for a big breakout

The daily chart of the USD/CHF (figure 1) continues to show constructive technical signals as far as the bullish case is concerned. Obviously the biggest risk to any technical outlook is sudden changes in sentiment because of some fundamental stimuli, such as the ongoing Brexit risks and Friday’s US jobs report among others. But with the SNB actively intervening in the FX markets (as indicated by the ballooning foreign currency reserves, which rose a further 7 billion francs in June to 609 billion – see the chart in figure 2) and the Fed still being the only major central bank looking to raise rather than cut interest rates (at some point), the fundamental outlook for the Swissy continues to remain bullish. It looks like all the USD/CHF needs now is just a push to trigger potential momentum buying interest and this trigger could come in the form of a solid NFP report on Friday.

As can be seen, the key reversal day was actually back in May 3 when price broke below the prior low at 0.9500, but finished the day significantly above this psychologically-important level, around where it had opened. As a result, a false break reversal pattern was formed with price also showing a doji candlestick formation, which is typically found near trend extremes. A sharp rally then followed as the sellers abandoned their positions and new buyers stepped in. This rebound eventually came to an end near the bearish trend line and the break above the 200-day moving average proved to be a temporary one. But then another rally initiated following a lengthy pause in the 0.9580-0.9685 range. Once again, there was a false break down scenario where the bears’ attempts to push price below this range was rejected, resulting in a bullish engulfing candle and a subsequent bounce. This rally also came to a halt around the bearish trend line but the corresponding dip was bought this Tuesday at the top of the former range i.e. 0.9685 where price formed another bullish engulfing candle.

So within the larger consolidation pattern, there are bullish signs emerging that suggest a bullish breakout could be on the cards soon. Conservative trend traders may wish to wait for this potential scenario to unfold before jumping on the bandwagon, while for the shorter-term-focused speculators there should be plenty of opportunities to take advantage of even before that potential bullish breakout occurs. Some of the potential levels of support and resistance are shown on the chart in blue and red, respectively. It will be a bearish outcome should the Swissy move back below 0.9685 support.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.