USD/CHF could move sharply in first week of 2016

It is almost time to start the New Year’s celebrations in Europe; our US traders will have to wait a little longer as the markets there are still open, so there’s still enough time for one more analysis piece! This time we are taking a look at a short-term chart of another dollar pair, namely the Swissy, ahead of next week’s key US data releases that culminate in the December jobs report on Friday, January 8. The week’s other important US data will include Monday’s ISM Manufacturing PMI, and ADP non-farm employment change, trade balance, ISM non-manufacturing PMI and the FOMC meeting minutes, all on Wednesday.

From a technical perspective, the USD/CHF’s recent failure to hold above the January 2015 high of around 1.0240 was a clear bearish development, which led to a vicious drop of more than 500 pips from the high to the recent low of 0.9785 as the longs rushed for the exists. But the longer-term technical outlook is still bullish, given, for example, that price is still holding above both the 200-day moving average and a year-old bullish trend line. In fact, the long-term bullish trend may have already resumed after the 61.8% Fibonacci retracement level against the October low held as support recently.

Today, the dollar bulls have so far shrugged off the weaker unemployment claims and Chicago PMI data. At the time of this writing, the USD/CHF was holding just below the 50-day moving average around 0.9990 and was thus only slightly off the 1.00 handle. If the Swissy closes above the moving average then this would be a further bullish development, which could see price make a decisive move back above parity (1.0000) next. The parity, as well as being a psychological level, roughly corresponds with the 38.2% Fibonacci retracement against the recent high, so it is a key technical level. A break above it therefore would be a very bullish outcome. In that case, the bulls may then aim for the 61.8% Fibonacci level at 1.0120 next, followed by the January 2015 high of 1.0240 and then November’s peak at 1.0325.

If however the USD/CHF fails to break through parity decisively, then it may drop back towards short term support around 0.9900, before possibly going for a test of the bullish trend line around 0.9800 or even 0.9655, with the latter being the meeting point of the 200-day average and the 78.6% Fibonacci level.

So, those are some of the key levels we will be watching early next year and depending on the direction of the break, the USD/CHF could be in for some sharp moves, providing plenty of trading opportunities. We wish you a happy New Year and success in your trading!