The USD/CHF has steadily trended lower over the past few months after forming a high around the 1.03 handle. The decline has largely been exhibited in the form of a wave pattern with prices making steadily lower highs. Subsequently, when the most recent rally bucked that trend and broke towards the 0.99 handle the bulls were quick to point out that the pattern had been broken. However, the pair could be setting up for a fall as there are some nasty indications evident upon the chart.
In particular, despite the recent rally, the RSI oscillator has just entered overbought territory which is also mirrored by stochastics. Additionally, MACD has also entered a reversal zone which lends further credence to the theory that the pair has largely run out of steam. However, it should be noted that the 12 and 30 EMA’s remain relatively bullish but lagging behind the general trend as expected.
In addition, there is a relatively strong zone of resistance around the 0.9975 mark which is likely to cap any near term bullish gains. The 50% Fibonacci retracement level is also relatively close to the pair’s current level and is likely to also complicate any further moves higher.
Subsequently, as price action continues to flatten over the past few days, it is apparent that the tank has run empty, and the downside now beckons. Given the current overbought status of the oscillators, it is highly likely that we will see a sharp correction back towards the 0.9648 mark in the coming week. However, to avoid any false breakdowns, watch for the pair breaking below the 100-Day MA before considering an entry.
Ultimately, the trend in the days ahead is likely to be set by the tone of the US FOMC and the moving probability of a rate hike. Subsequently, keep a very close watch on Fed Chair Yellen’s speech, due Friday, as the market will be attempting to gauge her level of rhetoric in the lead up to June’s rate decision. Any hawkish tone could subsequently cause a sharp appreciation of the dollar and risk invalidating the current technical signals.