USD/CHF: two Swiss-cheese-style holes on the way to parity

<p>Times are good for USD/CHF bulls: the pair is breaking out to a new 11-week high at .9580 this morning on the back of broad-based […]</p>

Times are good for USD/CHF bulls: the pair is breaking out to a new 11-week high at .9580 this morning on the back of broad-based US dollar strength and general weakness in European currencies. Before those bulls start to turn their eyes eagerly back toward the key parity (1.00) level though, there are two Swiss-Cheese style holes that could swallow up the rally.

Over the last four months, USD/CHF has carved out a clear geometric Fibonacci pattern called a Bearish Gartley “222” pattern. For the uninitiated, this formation is named after the trader (H.M. Gartley) and page number (222) of the first book to describe it (Profits in the Stock Market) way back in 1935. In essence, it helps traders identify higher-probability turning points in the market from the convergence of multiple Fibonacci levels. In this case, at least three significant levels all converge in the .9600-50 zone (see chart below for more detail):

  • The 50% Fibonacci retracement of the XA leg (.9599)
  • The 127.2% Fibonacci extension of the BC leg (.9649)
  • An ABCD pattern, where the AB leg is the same length as the BC leg (.9625)

The confluence of these resistance level marks an area where bullish traders are more likely to take profits and the trend could stall. Meanwhile, the Slow Stochastics indicator is also probing overbought territory (>80) for the first time since May, increasing the probability of a pullback off resistance.

Even if bulls are able to traverse that first area of resistance, there is a possible secondary pattern completion in the mid-.9700s, stemming from the combination of the 61.8% retracement of XA, the 161.8% extension of BC, and the 127.2% extension of the ABCD pattern (where CD is 127.2% of AB) that could also serve as a hurdle ahead of the widely-watched parity level.

Only if buyers are able to navigate these two critical barriers can USD/CHF eventually return to life back above 1.00.

 

USDCHF7-16-2015 3-11-49 PMSource: City Index

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