Forex Trading Alert: USD/CHF - Time for Correction?

By: Przemyslaw Radomski & Nadia Simmons | Thu, Aug 21, 2014
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Forex Trading Alert originally published on Aug 21, 2014, 4:32 PM

Earlier today, the U.S. dollar moved lower against the Swiss franc as investors jumped out to the sidelines and sold the greenback for profits waiting for the Federal Reserve Chair Janet Yellen's speech before the annual Jackson Hole economic symposium on Friday. As a result USD/CHF reversed and invalidated small breakouts above important levels. Does it mean that correction is just around the corner?

In our opinion, the following forex trading positions are justified - summary:

EUR/USD: none
GBP/USD: none
USD/JPY: none
USD/CAD: none
USD/CHF: none
AUD/USD: none


EUR/USD

EUR/USD Weekly Chart
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On Tuesday, we wrote the following:

(...) if currency bears show their claws (...), EUR/USD will test the strength of the strong support zone created by the 38.2% Fibonacci retracement based on the entire 2012-2014 rally and 61.8% the next Fibonacci retracement (based on the March 2013-May 2014 increase) around 1.3222-1.3250.

Looking at the weekly chart, we see that the situation developed in line with the above-mentioned bearish scenario. As you see, this strong support zone withstood the selling pressure (so far) and the exchange rate rebounded slightly. What's next? If this area encourages currency bulls to act, we'll see further improvement and an increase to (at least) the August high of 1.3432. Please note that this scenario is currently reinforced by the position of the indicators (the RSI dropped to its lowest level since July 2012, while the Stochastic Oscillator generated a buy signal and the CCI is close to doing the same), which suggests that a pause (or corrective upswing) is just around the corner.

Will the daily chart give us more clues about future moves? Let's check.

EUR/USD Daily Chart
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Quoting our previous Forex Trading Alert:

(...) EUR/USD moved lower and broke not only below the 76.4% and 78.6% Fibonacci price projections and the November low, but also under the lower border of the declining wedge. This is a bearish signal, which suggests that the exchange rate will extend losses and (more likely than not) drop to around 1.3254, where the size of the downswing will correspond to the height of the consolidation (marked with blue). At this point, it's worth noting that this area is reinforced by the green support zone marked on the weekly chart, which may pause or even stop further deterioration.

On the daily chart, we see that the exchange rate reached our downside target earlier today. Such price action in combination with the green support zone (marked on the weekly chart) reduced the selling pressure and triggered a corrective upswing. Despite this move, we think that it's too early to say that anything has really changed as the pair still remains below the previously-broken lower border of the declining wedge. In our opinion, as long as there is no invalidation of the breakdown below this support/resistance line, another test of the strength of the support zone can't be ruled out. So, when will the very short-term outlook improve? From today's point of view, it seems that the situation will turn to bullish if EUR/USD breaks above the upper line of the declining wedge and the recent highs (around 1.3420-1.3444). At this point, it's worth noting that this scenario will be more likely if the indicators generate buy signals.

Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bearish

Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment.


GBP/USD

GBP/USD Weekly Chart
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On Tuesday, we wrote:

(...) the pair reached the 23.6% Fibonacci retracement level based on the entire 2013-2014 rally. (...) if the exchange rate breaks below it, we'll further deterioration and a drop to around 1.6408, were the size of the correction will correspond to the height of the rising wedge.

From this perspective, we see that GBP/USD extended declines, which suggests that currency bears will try to realize the above-mentioned scenario in the coming week (or weeks) - especially when we take into account the fact that there are no buy signals or positive divergences between the indicators and the exchange rate, which could bode well and precede a pause or an upswing in the nearest future.

Can we infer something more from the daily chart? Let's check.

GBP/USD Daily Chart
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Quoting our last commentary on this currency pair:

(...) the recent downswing took the pair to the 23.6% Fibonacci retracement, (...) if this important support level is broken, the next downside target will be the support zone created by the April low and the 127.2% Fibonacci extension (based on the May-July rally)

From this perspective, we see that the very short-term situation has deteriorated once again as GBP/USD broke below the 23.6% Fibonacci retracement and the pair reached our downside target. If this area holds, we'll see a rebound from here and an increase to (at least) the Monday high of 1.6736. Nevertheless, if the exchange rate moves lower, the next target for currency bears will be around the March low, which is reinforced by the 141.4% Fibonacci extension. Please note that although the indicators are oversold, there are no buy signals at the moment, which supports the bearish case.

Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: bearish
LT outlook: mixed

Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment.


USD/CHF

USD/CHF
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The medium term picture has improved as USD/CHF broke above the long-term declining resistance line and reached the 38.2% Fibonacci retracement based on the entire May 2013-March 2014 decline. Despite this move, the exchange rate gave up some gains and is trading slightly below the orange resistance zone. If it holds, we may see a pullback from here and a comeback to the long-term red line. Nevertheless, if currency bulls do not give up and USD/CHF moves higher, the next upside target will be the 2014 high of 0.9155 or even the 50% Fibonacci retracement.

Having say that, let's focus on the very short-term changes.

USD/CHF Short-term
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In our Forex Trading Alert posted on Tuesday, we wrote:

(...) In our opinion, even if the pair moves higher, the upper line of the medium-term rising trend channel (marked in purple) will likely stop further improvement - similarly to what we saw at the beginning of the month.

Looking at the above chart, we see that although USD/CHF broke above the upper line of the declining trend channel and the recent highs, the combination of the 161.8% Fibonacci extension and the upper border of the purple rising trend channel encouraged currency bears to act. As a result, the exchange rate reversed and pulled back to the support level based on the recent highs. If it withstands the selling pressure, the pair will likely test the strength of the key resistance line. However, if it is broken, we'll see further deterioration and a drop to (at least) the previously-broken upper blue line or even to the Aug 15 low of 0.9022. Please note that the current position of the indicators suggests that the bearish scenario is more likely in the coming days - especially if they generate sell signals.

Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
MT outlook: mixed with bullish bias
LT outlook: bearish

Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment.

Thank you.

 


 

Przemyslaw Radomski

Author: Przemyslaw Radomski

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Gold & Silver Investment & Trading Website - SunshineProfits.com

Przemyslaw Radomski

Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same.

His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the current situation.

Recognizing that predicting market behavior with 100% accuracy is a problem that may never be solved, PR has changed the world of trading and investing by enabling individuals to get easy access to the level of analysis that was once available only to institutions.

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PR believes that the greatest potential is currently in the precious metals sector. For that reason it is his main point of interest to help you make the most of that potential.

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for professional excellence and ethics for the ultimate benefit of society.

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Disclaimer: All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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Nadia Simmons

Author: Nadia Simmons

Nadia Simmons
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Forex & Oil Trading Strategist
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Nadia Simmons

Nadia is a private investor and trader, dealing in currencies, commodities (mainly crude oil), and stocks. Using her background in technical analysis, she spends countless hours identifying market trends, major support and resistance zones, breakouts and failures. In her writing, she presents complex ideas with clarity that enables you to easily understand market changes, and profit on them. Nadia is the person behind Sunshine Profits' 3 premium trading services: Forex Trading Alerts, Oil Trading Alerts Alerts, and Oil Investment Updates.

All essays, research and information found above represent analyses and opinions of Nadia Simmons and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Nadia Simmons and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Nadia Simmons is not a Registered Securities Advisor. By reading Nadia Simmons's reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Nadia Simmons, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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