By: Mike Kulej
After the last FED rate decision, currencies responded with by the so-called “flight to safety”. Fears of renewed quantitative easing made money flow into the Japanese Yen and the US Dollars, seen as “safe havens”. Largely unheralded, the Swiss Franc also became the beneficiary of this new risk aversion.
It is perhaps best seen on the daily chart of the EUR/CHF pair. This cross plummeted from the high of 1.3923 to 1.3140 in a very swift move, closing on Friday at both daily and weekly low. Candlesticks formed what is called a “shaven bottom”, a pattern that indicates continuation of the bearish trend. That said, this particular market swing might be coming to an end.
As the speed of the selloff in EUR/CHF increased recently, some of the technical indicators failed to keep pace with price. A good example is the MACD indicator. With the price seemingly poised to test the low 1.3073, the indicator is lagging behind, showing a reading way above what it registered in June, when the Euro-Swiss made the all time low. This presents a possibility of a bullish divergence.
For this to happen, the EUR/CHF will have to make a new low. It is almost certain that the MACD will not follow and a bullish divergence will indeed form. A reversal pattern formed under these conditions could be a good buying opportunity, making the EUR/CHF worth watching.
Is EUR/CHF Oversold?
DailyForex.com