- The USD/CHF had a strong session on Friday as we continue to bounce from extreme lows.
- At this point, the market is likely to continue to see a lot of noisy behavior, because we are trying to balance the extreme lows over the last several months.
- After all, we are forming a massive megaphone pattern, which tends to show a lot of volatility and can lead to a complete reversal. This is especially true considering that the market had been so oversold for a while.
The 50-Day EMA sits just below the 0.94 level and is falling rather significantly. The market has a lot of noise just above it, but if we were to turn around and take out all of this noise, that could be a huge move to the upside just waiting to happen. Breaking above that 50-Day EMA would signify short-term momentum to the upside, which of course will attract a lot of people as well. The 200-Day EMA sits right around the 0.95 level, and therefore I think you have a situation where the market will be paying close attention to that area, perhaps opening the possibility of a move all the way back to the parody level, which obviously would take some time to get to.
Noise Ahead
On the other hand, if we take out the bottom of the candlestick from the Thursday session, then it’s likely that we could go down to the 0.90 level, which should have a certain amount of psychological support and structural support around it. Having said that, if we were to break down below there, then we could see a complete breakdown. I don’t necessarily think that’s going to be the case, but it is something to keep in the back of your mind.
The only thing I think you can count on is a lot of noisy behavior, but that’s nothing new. Position sizing will be key, but I will not hesitate to add to a winning trade in this market, as it does tend to trend for long periods of time. The Swiss are notorious for intervening in the markets, so that could come into the picture as well, but right now I don’t think there’s a huge concern about that. This is all about the US dollar.
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