Key Points:
- A reversal could be seen earlier than anticipated.
- Selling pressure likely to stem from bearish technical bias.
- Losses could extend to a 12-month low at 0.9531.
The Swissy looks about ready to make an about face as its rally appears to have run short on momentum. This is largely indicated by the technical bias which remains firmly bearish – even if the pair has managed to claw its way back the 50.0% Fibonacci level. As a result of this, the USDCHF could begin to track towards the 0.9531 handle in the coming days which would be a 12-month low.
First things first, it’s worth taking a closer look at exactly why we expect to see the pair reverse shortly –especially given that we had originally forecast a rally up to at least the 0.97 handle. Primarily, the formation of a shooting star (sometimes called a pin candle) during the prior session can be attributed to sparking concerns of an early reversal. Ordinarily, such a candle wouldn’t be nearly enough to pose a real threat to the uptrend. However, due to numerous other technical indicators also remaining bearish in spite of the rally, fears that bulls are losing control are notably heightened.
In particular, it has been noted that the parabolic SAR and EMA’s have yet to shake their strongly bearish bias. This should make it fairly easy for the bears to put pressure on the pair once the decline has resumed and this view is only reinforced by the ADX reading which has been above that key 20.0 reading since May – the beginning of the most recent long-term rout for the USDCHF. Overall, the technical outlook is fairly grim and the movement of the stochastics out of oversold territory certainly won’t be helping matters either.
If we do see this pair begin to slump yet again, we expect it to reach as low as 0.9531 rather quickly. Losses past this point are currently looking unlikely as the 0.9531 mark does represent at 12-month low and the Swissy will almost certainly be flirting with becoming oversold upon reaching this price. Nevertheless, it will be worth taking a look at the pair closer to the time as it could continue to track lower if the MACD and signal line crossover – a feat that isn’t actually looking too unlikely.
Ultimately, monitor the USDCHF as we move forward as the pair could have some solid moves instore for us yet. As discussed, the technical bias is suggesting that the bears are likely to be staging a comeback this week which could result in some notable losses. Nonetheless, also keep an eye on the fundamental side of things as any particularly robust US employment data could upset the applecart as this week comes to an end.
