Key Points:
- Near-term upsides could be a set up for a long-term decline.
- Price action seems to indicate that a long-term double top is in place.
- Fundamental view is in line with the technical forecast.
The EURCHF has an interesting technical set-up developing that could mean we have both upside and downside risks to consider moving forward. Specifically, we are probably going to see the pair advance in the near-term although this is likely to simply be the preamble to a rather precipitous decline that could send us back to April’s lows.
Turning firstly to the near-term forecast, we currently expect to see the pair move up to around the 1.0964 handle within the next week or so. This is primarily a result of the developing double bottom pattern that began to retrace in early May and is now moving into its final leg. Of course, this is largely contingent on the 1.0869 support remaining intact but – given the presence of the 38.2% Fibonacci level and a historical zone of reversal – it seems fairly likely that it will hold firm.
In the event that support does indeed remain unbroken, the combined influence of the EMA bias and the nearly oversold stochastics should prove to be more than capable of rallying the bulls. However, if we take a look at the wider pattern, there is another reason to be optimistic of a near-term advance for the pair. Notably, the already described double bottom actually resides within a larger double top pattern and the completion of this near-term pattern will confirm that the long-term structure is also valid.
The confirmation of the double top brings us to the second part of our forecast which is precisely the opposite of our near-term bias. As illustrated above, a rally back to the descending trend line at the 1.0964 mark should result in yet another reversal and a subsequent downtrend. What’s more, if this decline extends below the neckline of the long-term structure, we could have a major breakout to the downside on our hands which might even see the EURCHF retreat all the way back to the 1.0655 handle.
Ultimately, the bias is in line with most fundamental expectations as rising headline risks presented by the UK election, Brexit, and the Trump presidency will be weighing on the EURCHF. Indeed, these factors – alongside many others – are more than likely to see the pair retreat in the long-run regardless of the technical bias and it is, therefore, simply a bonus that the technical and fundamental outlooks are in agreement.
