Analys från DailyFX
USD/CHF Technical Analysis: Long USD Setup Available Against CHF
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Talking Points:
- USD/CHF Technical Strategy: Previously long, 4 targets hit, stop hit on remainder; long re-entry setup identified.
- The US Dollar had a brisk pullback last week and this hit USD/CHF; but this may be a re-entry opportunity.
- The big driver for USD this week will likely be Ms. Yellen’s testimony in front of Congress on Wednesday and Thursday; should she reiterate the Fed’s plans for 2016 rate hikes, USD could catch a strong bid.
In our last article, we looked at the gyrating up-trend in USD/CHF. At the time of that article Swissy had been on a rather consistent six-week up-trend as USD strength became a pervasive theme around that December rate hike from the Fed. As we had warned, the daily candlestick setup for last Monday was a Doji off of resistance, and this often preludes a swing in the other direction; so last week was not the time to press the up-trend in USD/CHF.
Since then, we’ve seen considerable USD-weakness as prospects of 2016 rate hikes out of the United States continue to diminish; but the deviation in rate expectations between the US and Europe (and in-turn Switzerland) continues to exist. And further to that point, we have no evidence as of yet that the Fed will, in fact, back down. That USD weakness from last week came from a speech given by Mr. William Dudley of the New York Fed, and here merely noted that continued USD-strength could bring recessionary forces to the US economy.
We discussed the prospect of continued USD strength and what that might entail in the article, The Real Bain of Equity Markets is Actually a US Dollar Problem, and in that article we looked at the fact that USD will likely remain bid until the Fed backs down from the prospect of tighter policy in 2016. And while it may seem simple for the Federal Reserve to just say ‘ah, forget about those rate hikes,’ there are likely other considerations that the bank is looking at that makes this not such a clear-cut decision.
Ms. Yellen speaks in front of Congress on Wednesday and Thursday of this week, and rate hikes/trajectory of lift-off will likely be a primary topic of discussion during her testimony; and that could bring considerable volatility into the US Dollar.
Traders looking to get long USD ahead of that testimony can look to USD/CHF, as we’ve run down to a previous level of support that could offer an attractive risk-reward ratio in trading in the direction of the previous trend. Traders can look to lodge stops below .9781, which is the 76.4% retracement of the secondary move in the pair, taking the January 2015 high to the 2015 low. This level had provided the swing-low in December just ahead of that FOMC rate hike, and traders can look to lodge stops below this potential support level to take on ~110 pips of risk.
On the profit target side, the price of parity could offer a roughly 1-to-1 risk-reward ratio with current prices, and this could be a fantastic opportunity to manage up risk by moving the stop to break-even, and perhaps scaling out of a portion of the lot. Just above that at 1.0077 we have the 1.272% extension of the previous major move, and at 1.0142 we have a previous swing-low that could be an attractive scale-out level. At 1.0239 we have that January high, as well as the most recent swing-high, and just beyond at 1.0300 we have the 1.618 extension of that prior major move.
Created with Marketscope/Trading Station II; prepared by James Stanley
— Written by James Stanley, Analyst for DailyFX.com
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What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
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Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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