USD/CHF: Respect The Trend Line

Since its fall all the way from 1.0238 down to 0.7780 on the 15th of January this year, the USD/CHF pair has been consistently climbing higher, breaking through the psychological parity hurdle this week. Making higher highs and higher lows, the greenback is soaring in an accelerating uptrend ( illustrated on the 8 hour chart below ).




Spotting a trend line, the traders are looking for an opportunity to enter the market and adhering to some mantras like "trend is your friend", "keep your losses small and let your profit grow", and their like, they try to add to their positions, placing a stop loss below the line, moving it in the direction of the trend. The less experinced of them usually watch/analyse only the hourly charts they trade, ignoring the slower time frames.

Experienced market participants, on the contrary, prefer to keep an eye on the bigger picture and usually start their analysis with the bigger time frames. They would immediately recognize the down-sloped trend line on the monthly chart below.




It comes a long way back from the 1.4277 high, marked in August 2003, and each time the price touched it, it pulled back, forming a wide spread down candle. It keeps a rich history, but an analyst would spot first the recent collapse of the pair, when the Swiss National Bank (SNB) abandoned its cap against the EUR/CHF. It represents a very tough resistance, which couldn't be broken by the first "attack" (under normal circumstances). An unexpected turmoil and geopolitical instability would rather strengthen the swiss franc due to its safe haven status. Normally, such a hurdle could be cleared after some "accumulation". To explain it in terms of the Elliott wave theory, such an "accumulation" could be provided for example by wave "B" or the fourth/second corrective wave of an impulsive up-move. On the other hand, an eventual massive intervention could break this strong resistance even by the first try.

Trading near the line, the currency pair is very sensitive towards news and decisions, taken by the central banks. The fact, that the SNB withdrew its peg against the EUR/CHF pair, when the USD/CHF was touching the trend line on the monthly chart (and the "A-B-C" corrective set-up was completed), isn't a coincidence for me. They have carefully chosen the most appropriate moment to achieve the effect that followed. In my opinion, the result of their decision - the invalidation of stop loss orders by troubled brokers and deleted accounts isn't necessary a once-in-a-lifetime experience, we could withness such a shock again.

Taking into consideration the high degree of uncertainty caused by the closeness of the trend line on the monthly chart and the fact, that the market has become too "emotional", i decided to close my long position by USD/CHF and to stay away from this market and all swiss crosses, looking for a trading opportunity somewhere else.