USDCHF: Sell-Off Pushes Through Long Term Bullish Support, and New Low Since June.
The chart below shows the daily price history of United States Dollars (USD) against the Swiss Franc (CHF) over the medium term. This currency pair is known as the USDCHF and is currently trading near 0.9129 CHF for every 1.00 USD (as of publication). Today, US Federal Reserve Chairman Ben Bernanke surprised the consensus by announcing that the FOMC would not be cutting back in its existing monetary stimulus program - for an undetermined amount of time - and a sell-off in the US dollar promptly accelerated against the Swiss Franc (and across-the-board for the USD against major currencies).
During this sell-off of the greenback earlier in the New York session, a long term bullish support line (point 7 in on chart in green), which has played a significant role in reversing bearish momentum for the USDCHF pair, has failed to do so this time around. Support was instead found upon the upper resistance line of a short term bearish channel (point 1 on chart in red) coinciding near the low of .9108 reached earlier today.
If this support line (point 1) cannot be regained in order to reverse the bearish momentum of today's session, then a re-entry of the bearish channel could propel the USDCHF pair along a steep trend line (such as point 5 in magenta) which could intersect towards .8900 over the next few trading days. A new bearish channel (point 9) may also be in-play if support is found upon its lower line which could cross near .9025 over the next week.
If enough support is found to reverse the bearish momentum of both today and the last few weeks in general, a steep bounce could follow along a short term bullish support line (such as point 2 in aqua).
Support may also be found near current trading levels as .9128 was the last time the pair reached this low before finding support (on June 13, 2013) and can be therefore considered a static (horizontal) support line. However, today new lows were made, since then (on .9108).
Comparing the last time the USDCHF pair was discussed in a previous article will highlight some of the trajectories and potential continuations – several of which have since occurred. Contrarian traders may be building long (buying) positions expecting a bullish reversal, whereas trend-followers may be building short (selling) positions expecting the bearish momentum to continue.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ .9070 with a Limit to take profit @ .9112 and a stop-loss @ .9041 Risk/Reward Summary: Limit risk = + 42 pips profit / (-29 ) Stop-loss risk = Gain to Loss ratio = 1.44
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .9098 with a Limit to take profit @ .9025 and a stop-loss @ .9235 Risk/Reward Summary: Limit risk = +73 pips profit / (-37 ) Stop-loss risk = Gain to Loss Ratio = 1.97
Medium term daily candle chart: