Key Points:
- The near-term technical bias is now looking rather bearish
- A reversal could see the pair back at the 1.24 handle
- Long-term bias remains bullish
A surprise rally of around 80 pips has brought the GBP/CHF into conflict with some robust resistance which could mean a sharp correction is now on the way for the pair. Indeed, the bears could swing into action in the coming session or early next week as, at least on the face of it, the bull’s latest bid to break above the 1.2538 handle seems to have failed.
As shown below, despite some strong buying pressure, the 38.2% Fibonacci level has remained intact once again. Of course, this isn’t entirely surprising given the presence of the 100 day moving average – a decent source of dynamic resistance. Additionally, the movement of the stochastics into overbought territory will be stifling any hopes that a breakout is on the way. As result, there is really little where else for the pair to go but down over the coming days.
Nevertheless, things aren’t entirely grim looking ahead as the trend of higher-lows is also still in play which should see losses limited to the 1.24 handle. What’s more, the unexpected push higher over the prior 48 hours has revived the bullish parabolic SAR bias which will help to keep support intact around the 1.24 handle. Furthermore, it will also enable the pair to reverse to the upside once it has tested that trendline again.
If we do see a secondary reversal, it will be worth watching exactly to where the subsequent uptrend extends to. This is largely due to the fact that it will help us to confirm whether we are amidst a rising wedge or a bullish channel. Determining this will allow us to judge the pace of the apparent long-term recovery of the pair – something the bulls are keenly monitoring.
Overall, expect to see losses in the near-term followed by a recovery, potentially above the 38.2% Fibonacci level. However, don’t neglect the fundamental side of things as the GBP has been having some strong reactions to both the hard data and the rhetoric which could upset this technical forecast. Indeed, a suitably bullish reaction to a fundamental upset could spark a breakout above the 1.2538 level that might actually see the pair surge to the 1.2650 handle before moderating.