USD/CHF may have bottomed, but could US stock markets spoil the party for bulls?
Fawad Razaqzada July 27, 2017 6:58 PM
The USD/CHF was the first major dollar pair to show strength this week and it has been the first to turn higher post FOMC...
The USD/CHF was the first major dollar pair to show strength this week and it has been the first to turn higher post FOMC. Most of the other major USD pairs have all given up their sharp gains after initially rallying hard on the back of a dovish policy statement from the Fed. As I warned in my EUR/USD piece earlier, most of the bearish news might be in the price now for the dollar. Although it is far too early to call this the bottom for the greenback, against her weaker rivals like the Swiss franc it is certainly looking strong at the moment. If tomorrow’s GDP data doesn’t show a big miss then the US currency could make a more profound recovery.
Ahead of the US GDP data, the USD/CHF has made back its entire losses from last week, creating what could be a bullish engulfing candle on its weekly chart, barring a surprise sell-off on Friday. On the daily chart, one can see that it has created what looks to be a false breakout reversal pattern at 0.9445, the 2016 low. Since that fake out, it has reclaimed the broken 0.9555 support level and moved above intermediate resistance around 0.9595-0.9620 area. Once resistance this area could turn into support, leading to a continuation in the rally. A break above the most recent swing high at 0.9700 would mark a break in market structure. We need this condition to be met to fully complete the technical reversal pattern, although judging by what has happened so far in the week, this looks almost inevitable.
One thing that could see the Swiss franc come back to life is if we see a marked deterioration in risk appetite. This afternoon, US stock indices sold off heavily, led once again by tech names. If the losses sustain themselves then we may see a sharp rise in perceived safe-haven assets. However, from a purely technical perspective, the USD/CHF looks like it may have bottomed out.
GAIN Capital UK Limited (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.