EURCHF Ready to Reverse as Technicals and Fundamentals Align

Key Points:

• Falling wedge being felt again.

• EMA bias still highly bearish.

• Market unease should help to increase downside risk.

The EURCHF had some strong buying pressure in the prior session but this may not be very sustainable given the pair’s overall technical bias. Specifically, aside from the long-term falling wedge, there are a number of signals indicating that we are liable to see a reversal in the very near-term. As a result of this, downside risks are present, even if the lower constraint is likely to cap losses around the 1.0620 handle.

Starting with the wedge, the presence of the structure on its own should be reason enough to suspect an impending slip for the EURCHF. Notably, the long-term pattern has weathered some fairly withering assaults yet remained firmly intact. As a result, we expect the outcome of this latest push higher to be met with a similar fate as both the December and January rallies which should mean a reversal is now imminent.  

However, due to the narrowing of the constraints of the wedge, one could argue that we might instead see the upside breakout that this pattern should eventually inspire. Unfortunately for the bulls, this would be at odds with a number of other technical readings that are currently evident on the charts.

Firstly, the current price level coincides with not only the upside constraint of the wedge but also the 50.0% Fibonacci retracement. This retracement has historically proven itself to be a reversal point and has been a rather stubborn zone of resistance over the past few weeks. Secondly, the EMA configuration remains highly bearish and is in little danger of reversing this bias any time soon. This is largely due to the stochastics which are on the cusp of moving into overbought territory and are preventing traders from seriously considering going against the trend.

From a fundamental perspective, any long-term upsides for any CHF cross are a fairly distant prospect. This largely stems from the persistent, if not consistent, level of unease that many market participants refuse to acknowledge is current at play. Indeed, with a VIX reading below 15, one can be forgiven for ignoring the role that the CHF’s safe haven status is playing in supressing pairs such as the EURCHF.

Ultimately, we could begin to see upside potential begin to rise as the world acclimatises to the Trump presidency and we get some firm details on his much talked about policies. However, in the near to medium-term, the technicals and the fundamentals seem to be in agreement that we are likely to see the downtrend extend for some time. But what does this mean for the next week or so? Well, as mentioned above, a reversal is now looking very probable and this will likely see the pair drift back towards the 1.0620 handle.