USD/CHF: All eyes on 1.0200-10 resistance ahead of the Fed

<p>Two weeks ago, we highlighted a constructive candlestick pattern off bullish trend line support on USD/CHF and concluded that the pair could well bounce toward […]</p>

Two weeks ago, we highlighted a constructive candlestick pattern off bullish trend line support on USD/CHF and concluded that the pair could well bounce toward near-term Fibonacci resistance levels at 1.0120 (61.8%) and 1.0210 (78.6%). It took its time getting there, but USD/CHF finally edged up to test the 1.0210 level yesterday, leaving the pair trapped between the proverbial “rock and a hard place” ahead of today’s Fed meeting.

As we noted in yesterday’s full FOMC preview report, the US central bank will almost certainly leave interest rates unchanged and make relatively minimal changes to its statement. Therefore, the market’s reaction will hinge on the base-case expectations and what traders “read between the lines” of the subtle language shifts. In other words, the initial reaction to today’s FOMC statement is difficult to handicap, but we don’t anticipate the sort of massive moves we’ve seen around previous monetary policy statements.

That said, a less-dovish-than-anticipated statement could still be enough to drive USD/CHF through 78.6% Fibonacci resistance at 1.0210, potentially clearing the way for an eventual move toward the 5-year high at 1.0325. The still-intact uptrends in both the MACD and RSI indicators, as well as yesterday’s Bullish Engulfing Candle* on the daily chart, support this bullish view. Conversely, a big dovish shift in the statement would likely drive USD/CHF down, though we would still anticipate that buyers would emerge around the 5-month bullish trend line near parity (1.00).

*A Bullish Engulfing candle is formed when the candle breaks below the low of the previous time period before buyers step in and push rates up to close above the high of the previous time period. It indicates that the buyers have wrested control of the market from the sellers.

USDCHF1-27-2016 8-51-47 AM

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.