EUR/CHF: All is not lost…yet

<p>Two weeks ago, EUR/CHF finally regained the 1.10 level for the first time since “Black Thursday,” when the Swiss National Bank unexpectedly dropped its floor […]</p>

Two weeks ago, EUR/CHF finally regained the 1.10 level for the first time since “Black Thursday,” when the Swiss National Bank unexpectedly dropped its floor on the pair. Unfortunately for EUR/CHF bulls though, it’s starting to look like at least a portion of those gains were illusionary.

Since the failed breakout, EUR/CHF consolidated below the 1.10 level throughout last week before turning definitively lower this week. As of writing, the unit is now trading beneath its previously-strong bullish trend line. In general, a broken trend line signals a change in trend, though not necessarily an immediate reversal of the previous trend; for example, EUR/CHF may simply start to “trend” sideways around 1.0800 from here, but there is no denying that the chart is less supportive than it was at this time last week.

Meanwhile, the secondary indicators have also deteriorated notably, with the MACD turning down to cross back below its signal line and the RSI indicator breaking its own bullish trend line. It’s worth noting that, even after the breakdown, the RSI is still in uptrend territory above 40, so bulls have reason to maintain some optimism, at least for now.

That said, we’re taking a “prove it” approach toward the recent EUR/CHF strength: as long as the unit remains below psychologically-significant resistance at 1.10, the level where it saw the false breakout earlier this month, more downside is favored in the short-term. From here, the next logical support levels to watch will be the 38.2% Fibonacci retracement of the Q3 rally at 1.0765 and the 50% retracement at 1.0680. Only a confirmed close back above 1.10 would signal that the rally has resumed and that a bearish bias is no longer appropriate.

Finally, in terms of fundamental catalysts, traders will closely watch tomorrow’s testimony by ECB President Draghi to the European Parliament. This quarterly presentation is akin to the semiannual Humphrey-Hawkins testimony by the US Federal Reserve Chair and could feature pointed questions about the ECB’s ongoing QE program and monetary policy more broadly.

eurchf9-22-2015 3-08-32 PMSource: City Index

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.