USD/CHF: Long term bullish support aids reversal of bearish momentum
The medium term chart below shows the USDCHF pair testing a short term resistance line in the current session coinciding near the high of .9319 and trading currently at .9308 (as of publication).
The line that is being tested in the current session (point 1) can be said to be part of an overall bearish channel formation along with a parallel short term bearish resistance line (point 6) which had contained the bearish momentum since July 10th when the pair failed to break above long term bearish resistance (point 3).
Since long term bullish support (point 7) has held firmly over the past two weeks, contrarians may believe that the bearish momentum has reversed (on point 7) and that a bullish continuation should follow along a steep trend line (such as point 2) after a successful breakout to the upside of the resistance line currently being tested (point 1). If this happens, a newly developed steep bullish line (such as point 2) could target the long term bullish channel (point 4) with further resistance targeted on the long term bearish line (point 3) intersecting (with point 2) by mid- September 2013 near .9700.
The target of the long term bullish support line (point 7) was anticipated and came to fruition since a previous article on the pair in mid-August 2013 and could repeat If a breakout above current resistance (point 1) fails. If this happens, the pair may follow a newly developed steep bearish line (such as point 5) and retest the long term bullish support line (point 7) with static support further below near .9000 by early September 2013.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ .9320 with a Limit to take profit @ .9388 and a stop-loss @ .9272 Risk/Reward Summary: Limit risk = + 68 pips profit / (-48 ) Stop-loss risk = Gain to Loss ratio = 1.41
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .9246 with a Limit to take profit @ .9176 and a stop-loss @ .9286 Risk/Reward Summary: Limit risk = +70 pips profit / (-40 ) Stop-loss risk = Gain to Loss Ratio = 1.75
Medium term daily candle chart: