EUR/CHF: is this the long overdue bounce?

<p>Volatility in the EUR/CHF may not be as excessive as it once was, which may be a good thing for a certain central bank (hint: […]</p>

Volatility in the EUR/CHF may not be as excessive as it once was, which may be a good thing for a certain central bank (hint: SNB), but the forgotten currency pair could actually bounce back this week as it has responded to a key Fibonacci support area around 1.0700/15.

As can be seen from the chart, the 1.0700/15 area is where the 78.6% Fibonacci retracement level of the last major upswing meets the 161.8% extension of the last corrective swing. In addition, 1.0715 was a prior support which momentarily broke down on June 24 after a big drop. It is often after big moves like the one on the 24th that the markets bottom out as the weaker longs are pushed aside and institutional buying takes place near the lows. These guys will clearly want to defend their long positions, meaning it is in their interest if the prior low at 1.0620/5 is now not retested. If that was indeed the low, then a deep retracement like the one we have seen could be where more buying takes place – by those who missed the initial rally and existing sellers who fear a low may be in place.

If the above thesis is correct, the bulls would now want to see the breakdown of some resistance levels, starting with the one being tested today: 1.0745/55 area. Although we have moved above here, we need to see price take this area out decisively, ideally on a daily closing basis or at worst hold there for some time on the lower time frames. I know there are lots of ifs, but IF that were to happen then we could see the start of a more pronounced recovery going forward. On the upside, the initial level of resistance above the 1.0745/55 area is at 1.0810, the prior low, followed by 1.0830: these would be the immediate bullish objectives.

Meanwhile if support at 1.0700 gives way on a closing basis, then this short-term bullish outlook would become invalid. In this potential scenario, the next logical level that the market could drop to would be the 1.0620/5 area.


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