Matt Simpson, CFTe, MSTA
CityIndex
Since the April high GBP/CHF has fallen nearly 9% and momentum suggests there could be further downside to come. Yet whilst we favour lower prices further out, the probability of a bounce could be increasing.
Technically we saw a close beneath the lower Keltner band last week. On the daily chart, RSI is heavily oversold, and we are now within the fifth session beneath (and extended beyond) the lower Keltner band. Furthermore, as of yesterday’s close the cross has failed to break an 8-day streak of consecutive losses. Whilst this may all point towards a bear’s picnic, historically such a bearish run has ended with higher prices over the near-term.
Over the entire sample set, 8 consecutive bearish closes (on a close to close basis) typically points towards higher prices over the subsequent 1-3-day period. In fact, two-day forward returns have averaged a positive price swing for 6-10 bearish streaks. Whilst this alone does not point towards a reversal as there have been exceptions, when we consider the heavily oversold RSI and extension beneath Keltner’s, it’s not impossible to believe mean reversion could be approaching.
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