GBP/CHF: Will the Swiss slice a hole through 1.4600 support?

It’s a classic risk-on day for global markets, with world equities rallying across the board, bond yields rising, oil ticking higher, and gold falling. This theme has carried over into the forex market, where commodity currencies are edging higher against the greenback, while low-yielders like the euro are suffering.

Traders who don’t want to play the day-to-day risk-on/risk-off roulette may want to take a look at a currency pair like GBP/CHF, which tends to move relatively independently of fickle trader sentiment. Conveniently, the pair is also showing a relatively clear technical setup as well. Rates broke below an established bullish trend line in late August before rallying back up to test the underside of that trend line a few weeks later. This is a great example of the polarity principle of technical analysis, or the idea that previous support levels, once broken, become future resistance levels.

Since then, rates have carved out a clear technical range between support at 1.4600 and resistance at 1.5100 over the last five weeks, and with the persistent weakness in the pound of late, the pair is now nearing critical support in the lower-1.4600s.

With the MACD indicator now trending down below both its signal line and the “0” level, the near-term momentum is clearly favoring the bears. And while the previous uptrend has been definitively broken, that does not necessarily mean price will immediately start trending lower.

In order for GBP/CHF bears to gain the upper hand, traders need to see a break below the 50% Fibonacci retracement at 1.4600. That development, if seen, would create a clear series of lower lows and lower highs over the last few months, opening the door for a move down toward the 61.8% or 78.6% Fibonacci retracements at 1.4425 and 1.4150 respectively. On the other hand, if bulls are able to defend the key 1.4600 area, a recovery back toward the 1.50 area, and more sideways consolidation, seems most likely.