It’s been one of those trading days where all the excitement took place early in the session. US equities tanked this morning, with the Dow Jones Industrial Average down nearly 400 points at one point before moderating back to a still-large 300-point drop by the end of the day. Meanwhile, the US Dollar Index was holding at its 11-year high around 95.00 prior to the US open, but dollar bulls chose to book their profits rather than press the trend, and the dollar is currently trading back down near 94.00. One of the components driving the dollar index back down was the Swiss franc. Admittedly, Switzerland’s currency only has a 3.6% weighting in the dollar index, though it has been particularly volatile of late.
Looking to the 4hr chart, USD/CHF settled into a 300-pip range from .8500 to .8800 in the week after the SNB’s unexpected decision to drop the cap on the Swiss franc. However, rates broke out of that range yesterday, briefly surging to a high in the mid-.9100s earlier today before pulling back. This price action created a large Doji* candle on the 4hr chart, showing indecision in the market.
From a technical trading perspective, large moves like the one caused by the SNB two weeks ago creates crystal-clear Fibonacci retracement levels that tend to hold more significance than usual. In this case, the pair seems to have settled in the lower-.9000s, just below the 38.2% Fibonacci retracement at .9070. While this barrier may prove to be a tough nut to crack, the MACD has recovered all the way back to its pre-SNB level and is currently showing bullish momentum by trending higher above its signal line and the “0” level.
Moving forward, readers can think of the .9070 level as a “floodgate” of sorts: if bulls can push USD/CHF above that level, an influx of buying pressure may drive rates all the way to the 50% Fib retracement at .9300 next. On the other hand, if that gate remains closed, the pair may remain “dammed” between previous-resistance-turned-support at .8800 and the .9070 level.
*A Doji candle is formed when rates trade higher and lower within a given timeframe, but close in the middle of the range, near the open. Dojis suggest indecision in the market.
