USD/CHF: Price action on verge of extended breakdown

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With the slow return of a risk-off mood, the Swiss Franc is attracting bids due to its safe-haven status. The US Dollar enjoyed a short period of strength despite mixed economic data, and optimism about the positive impact of the phase one trade truce between the US and China is fading. The USD/CHF managed to accelerate to the upside from inside its support zone, and the advance resulted in a breakout above the entire Fibonacci Retracement Fan sequence until its resistance zone ended the rally. A breakdown followed and price action is now trapped between the bottom range of its resistance zone and its descending 61.8 Fibonacci Retracement Fan Support Level.

The Force Index, a next-generation technical indicator, advanced with price action and completed a breakout above its horizontal resistance level which now serves as support. After the USD/CHF breached its 61.8 Fibonacci Retracement Fan Resistance Level to the upside, the Force Index stopped its advance which resulted in a first warning that the uptrend is losing momentum. This technical indicator started to reverse from its peak, as marked by the green rectangle, but maintains is position above its horizontal support level in positive territory. Due to the build-up in bearish momentum, the Force Index is expected to descend into negative conditions which is likely to trigger an extended breakdown in this currency pair. You can learn more about the Force Index here.

Bearish pressures are on the rise after price action was rejected by its short-term resistance zone, located between 0.99607 and 0.99809 as marked by the red rectangle; this zone has previously rejected a breakout attempt and reversed the USD/CHF into its support zone. The key psychological resistance level of 1.00000, or parity, is located just above this zone and further increases breakdown pressures on price action. Forex traders should monitor the intra-day low of 0.99423 which marks the low of a reversal following the breakdown in this currency pair below its resistance zone; a sustained moved lower with a contraction in the Force Index may trigger a profit-taking sell-off.

Price action may receive a short-term fundamental catalyst from today’s consumer confidence data out of the US. The intra-day low from where the advance emerged marked a higher low and the end of the rally created a slightly higher high; this represents a long-term bullish development, but the distance between previous highs and lows is not significant enough and may be invalidated during the next move in price action. The USD/CHF is expected to reverse into its support zone which is located between 0.98394 and 0.98664 as marked by the grey rectangle from where a breakdown remains unlikely in the current fundamental environment. You can read more about a breakdown here.

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USD/CHF Technical Trading Set-Up - Breakdown Extension Scenario

  • Short Entry                     @ 0.99550
  • Take Profit                       @ 0.98650
  • Stop Loss                        @ 0.99850
  • Downside Potential:       90 pips
  • Upside Risk:                    30 pips
  • Risk/Reward Ratio:          3.00

In case of a breakout in the Force Index to new highs, the USD/CHF could follow suit and pressure its short-term resistance zone into a breakout. Upside potential is limited to its next long-term resistance located between 1.00076 and 1.00274 which should be considered a great short-selling opportunity given the fundamental outlook for the global economy which favors a stronger Swiss Franc and a weaker US Dollar.

USD/CHF Technical Trading Set-Up - Limited Breakout Scenario

  • Long Entry                        @ 1.00050
  • Take Profit                         @ 1.00250
  • Stop Loss                          @ 0.99950
  • Upside Potential:              20 pips
  • Downside Risk:                10 pips
  • Risk/Reward Ratio:           2.00

 

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.