Key Points:
- A reversal is looking likely in the coming sessions.
- Support being generated by the 100 day EMA.
- Also keep half an eye on the BoJ.
The CHFJPY has been having some fairly reliable reversals over the past few weeks and it looks about ready to make yet another one. Nevertheless, the sheer momentum of the recent sell-off does bring into question whether or not the pair can make a recovery this time around. As a result of this, we might need to take a closer look at the technicals to try and establish a bias for the days ahead.
First and foremost, it’s fairly obvious that the CHFJPY has recently entered a ranging phase that has kept the pair oscillating between the 115.08 and 112.42 levels. Currently, price action is at the lower extreme of this range – usually a sure sign that we can expect to see the bulls get back into the driving seat in the coming sessions. However, can we be sure that support will hold this time around? Indeed, the 12 and 20 day EMA’s have just had a bearish crossover and the parabolic SAR is signalling that a downtrend is underway.
Fortunately, a closer inspection of the technicals reveals that we have good reason to suspect that a reversal is on its way in the near future. For one thing, unlike its shorter period counterparts, the 100 day moving average is still quite bullish. As shown, it is not only beneath the 12 and 20 day lines but it is also supplying dynamic resistance around that 112.42 handle. Given that this price is also the 38.2% Fibonacci retracement, a breakout would be highly irregular.
Regardless, minimised downside risks do not necessarily mean that we are about to see a solid uptrend take place. Instead, the argument for some buying pressure stems from the stochastics and the Bollinger bands. Starting with the stochastics, these are clearly in oversold territory and will need to be relieved going forward – potentially leading to some decent gains. However, it’s really the Bollinger bands that indicate that a sizable recovery is required as price action should be trying to move back to the basis line imminently.
Ultimately, keep an eye on this pair as there is definitely some potential for a rally moving ahead which could extend all the way up to the 115.08 handle. This being said, monitor the fundamental side of things on Friday as the BoJ could be making waves, thereby disrupting technical forecasts.
