Key Points:
- Despite recent losses, the pair may not have shaken its long-term bias.
- Numerous technical readings are now bullish.
- If we don’t see a reversal, losses could extend to the 0.95 handle.
The Swissy has been routing for a number of weeks now and, understandably, this has raised questions over whether or not the long-term technical bias is now shifting to bearish. However, we still have one vital support level left before we break what has been an uptrend lasting more than a year. As a result, it’s now make or break time for the bulls as, if they don’t fight back soon, losses may extend to the 0.95 level and beyond.
As shown below, even though the pair has been in decline since December last year, it has remained broadly bullish over the past 12 months. Additionally, without the unexpected effect of the ‘Trump bump,’ gains might have continued to follow the gentle uptrend that began back in April of 2016. This would have prevented the panicked sell-off that now has so many worried that the pair is destined to move to the downside in the long-term
As a result of this, the suggestion that the bulls have entirely given up is rather unfair as they seem to have simply retreated to a robust zone of support, from which, they can stage a comeback. In fact, a number of technical indicators are now shifting to signal that a reversal is on the cards. In particular, the highly oversold stochastics will be giving the bears pause for thought – especially given that the RSI readings are on the verge of reaching a similar conclusion.
What’s more, whilst it is currently bearish, the Parabolic SAR will invert if we see even a mild upswing which will go a long way in rallying the bulls. Furthermore, when combined with the presence of the trend line and the oversold readings, this reading would certainly suggest that a sizable correction to the upside is now warranted. However, the question remains, how far can we expect to see the pair recover in the medium-term?
Using Fibonacci retracement, we can forecast that the rally is likely to run short of steam at around the 0.9818 mark. This coincides with the 38.2% retracement (typically one of the more robust levels) and also a historical reversal point. Moreover, the 100 day moving average should be generating some dynamic resistance at this price which will mean the pair is facing some fairly strong headwinds as it extends.
Ultimately, don’t rule out the chances of the Swissy remaining bullish in the long-term – as tempting as it might be in the wake of the nearly 500 pip rout seen over the past few weeks. As mentioned, the presence of that trend line and the handful of bullish technical readings should be more than enough to encourage the pair to turn around in the absence of a major fundamental upset. Nevertheless, if the USDCHF does slide below the trend line, be prepared to see it test support as low as the 0.95 handle.
