Key Points:
- The current downtrend is unlikely to remain in place.
- Support is technically robust.
- A reversal could reach as high as the 0.9659 handle.
The Swissy has moved to test a critical technical support level over the past 24 hours and this could result in a reversal for the pair in the immediate future. Overall, it is unlikely that any such reversal breaks free from the bearish channel that has been constraining the pair since May. Nevertheless, it could at least carry the USDCHF back to the upside of the structure – not an immaterial gain for the embattled pair.
As shown below, the Swissy has been under pressure over the past few sessions which has, quite understandably, gotten the bears excited. Indeed, given the pace of recent losses, it looks as though momentum has shifted and that they are finally going to break through the long-term trendline – potentially sending the USDCHF reeling. However, upon closer inspection, numerous technicals are suggesting that the latest attempt to breakout to the downside is going to be yet another failure.
For one thing, the latest downtrend is nowhere near as strong as it at first appears. Whilst not shown, the ADX reading is sitting somewhere around the 16.00 level – effectively signalling that the bearish push is not particularly voracious. This is important to note as the support that the bears are hoping to overcome is actually rather robust and probably unlikely to buckle unless significant selling pressure can be mustered.
Indeed, breaking through support requires breaching not only the long-term trendline but also the downside of the more recent channel. On their lonesome, these hurdles could potentially be overcome but, much to the disappointment of the bears, there are two other key factors standing between them and their much desired push below the 0.9503 handle.
Firstly, the stochastics can’t be ignored as they are convincingly in oversold territory which would typically suggest further losses are going to be limited, if not non-existent. Secondly, the pair is now resting directly on top of the lower Bollinger band which only adds to the already impressive degree of support around the 0.9503 level. However, these two indicators also indicate something else. Specifically, they suggest a correction to the upside is warranted.
Ultimately, any rally that is seen is likely to terminate around the 0.9659 handle as the pair comes into conflict with the upside of the channel. Nevertheless, this is still a rally of around 140 pips which isn’t an immaterial amount. However, do remember to keep an eye on the fundamental side of things as this could slow or even prevent any near-term bullishness for the USDCHF if the US data continues to disappoint.
