USDCHF: Four-Decade Low in US Jobless Claims Could Overcome Bearish Technicals

Last week, we highlighted a confluence of key resistance levels in the .9600-50 zone on USDCHF (See “USDCHF: Two Swiss-Cheese Style Holes on the Way to Parity” for more). As anticipated, the pair edged up into that area and has since turned lower to fall over 100 pips from the high set earlier this week. Now, the question on traders’ minds is “Where will the pair head next?”

Based on this morning’s US initial jobless claims report, the uptrend may resume sooner rather than later. The volatile weekly labor market measure showed that only 255k Americans filed for unemployment benefits last week; incredibly, this marks the lowest reading in this indicator since 1973, over four decades ago! Not surprisingly, the dollar caught a small bid on the back of this release, but the market is justifiably cautious about overreacting to such a noisy figure.

That said, the aforementioned converging resistance levels in the .9600-50 area could still put a cap on any rallies today. As a reminder, the 50% retracement of the XA leg, the 127.2% Fibonacci extension of the BC leg, and an ABCD pattern all converge at this level (creating a clear Bearish Gartley pattern, not to mention the prevailing overbought reading in the Slow Stochastics indicator), so the unit may struggle to break out above that level without a deeper pullback first.

As a general rule of thumb, a completed Bearish Gartley pattern projects a target at the 61.8% retracement of the whole ABCD pattern, which in this case would come in all the way down near .9290 (not shown). Given the consistently strong US data though, a dip toward the near-term bullish trend line and 38.2% Fibonacci retracement around .9425-50 would be a more conservative target. Of course, if the pair manages to break above this week’s high at .9650, a continuation toward secondary pattern completion in the .9725-.9775 would be favored.