On my July 21st USD/CHF post, I identified that the bullish trend could continue and ultimately find key resistance from the .9700 zone. The uptrend was confirmed two weeks ago when price advanced above all three key (200-, 100- and 50-day) Simple Moving Averages. While the bullish trend is likely to continue on improving US economic data, we could finally seeing a decent pullback before resuming its longer-term bullish trend.
The USD/CHF daily chart shown above displays that we have a confluence of reversal patterns forming around the .9700 handle. A potential bearish Gartley pattern (shown in orange) is targeted with the 78.6% Fibonacci retracement of the X to A leg and the 141.4% Fibonacci expansion level of the B to C move. The other reversal pattern is a bearish butterfly that aims for the reversal to respect the 261.8% Fibonacci expansion level of the X to A leg and the 200.0% Fibonacci expansion level of the B to C decline.
If the bearish reversal continues, we could see price target trendline support shown in green. A deeper retracement may target the 200-day SMA which currently trades around the .9525 area. If the noted major resistance level is not respected further upside may have a clear path towards the .9850 zone.
The trade: Buy USD/CHF at .9525 with a stop loss at .9475 and a take profit at .9725. The Risk/Reward Ratio is 1:4.
Edward J. Moya
Chief Technical Strategist
WorldWideMarkets Online Trading