A week ago today, we published a report highlighting a bullish cup-and-handle pattern on EUR/CHF, concluding that, “as long as EUR/CHF holds above its near-term bullish trend line (currently near 1.0580), the path of least resistance will remain higher for EUR/CHF” (see “Another Cup of Tea for EUR/CHF Bulls?” below). While the pair has not yet managed to rally to the 50% Fibonacci retracement and measured move target around 1.0860, the bullish trend line continues to provide support, keeping the pair’s technical bias to the topside for now.
As we noted this morning though, the euro’s failure to rally on the ostensibly bullish news about Greece’s reform list suggest that the single currency could be vulnerable to a pullback. Meanwhile, the USD/CHF pair is now testing a major 61.8% Fibonacci retracement level at .9515 against the US dollar, so a bounce in the value of the franc would not be surprising. Even in EUR/CHF itself, there are some signs that the bullish momentum is waning, including a potential bearish divergence developing in the RSI indicator.
Given the less optimistic picture for the dollar crosses and deteriorating secondary indicators, EUR/CHF bulls may want to adopt a more cautious posture over the rest of the week. As long as rates hold above the bullish trend line, a potential move toward the key 1.0860 level is in play. But, if we see EUR/CHF break support at its bullish trend line (perhaps accompanied by a break below the 40 level in RSI), a quick dip back to previous-resistance-turned-support at 1.0640 or lower is possible.
Another Cup of Tea for EUR/CHF Bulls?
Updated - Feb 17, 2015 1:35:00 PM By Matt Weller, CMT
The ubiquitous idiom “once bitten, twice shy” was apparently first recorded back in 1894, but in the minds of FX traders, the phrase gained a new relevance on January 16th, when the Swiss National Bank shocked the market by dropping its long-maintained floor in EUR/CHF. The Swiss franc surged an unheard-of 25-30% in the next hour, “biting” many traders who had been betting on the franc remaining weak.
Though traders are now “twice shy,” about trading EUR/CHF, the pair has formed a clear bullish technical pattern over the last two weeks that may draw in reticent traders. After peaking at 1.0640 earlier this month, the pair pulled back to 1.0400, failed again at 1.0640, found support in the mid-1.0500s, and thus far today, has finally overcome resistance at the 1.0640 level. In other words, EUR/CHF has broken out from a crystal-clear cup-and-handle pattern. The secondary indicators further bolster the bullish case, with the 4hr MACD crossing back above its signal line (and still holding above the “0” level), while the RSI is holding in bullish territory, but not yet overbought.
Given the major technical breakout, EUR/CHF could extend its gains in the coming days. From a Fibonacci perspective, the next major level of resistance is the 50% retracement of the entire post-SNB drop at 1.0860; conveniently, this level also approximates the measure move projection of the maximum height of the cup-and-handle pattern at 1.0870. Therefore, as long as EUR/CHF holds above its near-term bullish trend line (currently near 1.0580), the path of least resistance will remain higher for EUR/CHF.
