By: Mike Kulej
The Swiss Franc, like many other currencies, has appreciated substantially against the US Dollar in recent months. In the latest major price swing, the USD-CHF dropped from 1.1730 to an all time low of 0.9462, without much of a pause.
Since reaching the lowest level ever, this pair has recovered to 0.9930, an almost 500 pips rally. In many instances, an advance of this size would probably lead to a trend change, even on daily charts.
In this case, however, it is not that simple due to the nature of the preceding decline. The nearest important resistance is at 1.0170 and that has to be broken before the reversal is confirmed.
In addition, the dominant trendline is still some distance from the price, partly because of how it has to drawn at the start of the downtrend. Also, the low itself lacks a convincing candlestick reversal pattern, and individual candlesticks do not even stand out based of their size.
Other technical tools are more supportive of the reversal scenario. The MACD is nearing the zero line, following a divergence, a positive sign for the bulls. If the price is smoothed out using the Three Line Break chart, it shows a breakout above the trendline.
On balance, however, until more evidence emerges the current rally in the USD-CHF should be viewed as a correction and not a reversal. Not yet, at least.
