Key Points:
- ABC wave looking fairly likely to take shape.
- EMA crossover should see the B leg complete properly.
- Long-term trend line should cap downside risks at the end of the wave.
The Swissy has an interesting set-up developing which could lead to both some upside and downside trading opportunities over the coming weeks. In the near-term, gains could continue to be posted all the way back up to the 1.0187 handle. In the medium-term however, we could see the USDCHF sinking back to test the trend line around the 0.9789 mark.
One of the key drivers of these moves is the development of a rather solid looking ABC wave. These waves have been seen for many crosses since the post-election rally and there is no real reason to suspect that the Swissy will be much different. Although, before we can be certain that this is indeed an ABC wave, we will have to see this pair move back to the 1.0187 mark.
Fortunately, we have some evidence to suggest that this is likely to come to pass within the next few weeks. Firstly, the daily EMA’s are on the cusp of having a bullish crossover which typically denotes a shift in sentiment from bearish to bullish. Indeed, the parabolic SAR has already inverted to signal that bullish momentum is on the rise and should be carrying the pair higher. Moreover, now that the USDCHF has closed above the key 38.2% Fibonacci level, there should be little in its way.
However, the brevity of this rally may be somewhat more pronounced than we would typically expect. This comes largely by virtue of the historical zone of resistance around the 1.0187 handle which should prove to be our reversal point. Whilst, yes, the pair has pushed beyond this price recently, the fact that it also coincides with the appropriate retracement for the B leg of the corrective wave should hinder attempts to break through again.
Once this reversal has occurred, losses should extend back to around the 0.9789 level before the USDCHF reaches yet another impasse. At this level, some strong historical support will come into play as a result of the long-term ascending trend line. Interestingly, this point once again coincides with the appropriate retracement typical of the forecasted ABC wave which won’t go unnoticed by traders.
Ultimately, whether or not this pattern eventuates is largely dependent on both US and Swiss economic data, alongside Trump’s day-to-day influence. However, due the likely uptick in market fears as Brexit approaches, we can expect the Swiss franc’s safe haven status to begin to drag the pair lower in the medium-term. Of course, this broadly fits with the technical analysis above and is worth keeping in mind.