Ranging Phase Could be Taking Hold of the Swissy

Key Points:

• Near to medium-term ranging phase now likely.

• Slip to the downside expected eventually.

• Fundamental and technical bias in agreement.

The USDCHF looks ready to enter a ranging phase moving ahead which could last a number of weeks before a large slip to the downside is subsequently seen. This sideways movement will come as a result of the interaction of some countervailing technical forces and an equally mixed fundamental bias. Consequently, it may be worth taking a closer look at the pair as the range trading opportunities and the eventual downtrend could be worth taking into account.

Firstly, it’s worth noting that the Swissy remains confined within a broader consolidation pattern, namely, a falling wedge. Indeed, the most recent rally was, in part, a reaction to the pair being forced into conflict with the lower constraint of this overarching structure. However, despite the current bullish momentum, it is unlikely that we see the USDCHF continue to extend gains much higher as another zone of resistance should kick in prior to the upside constraint of the wedge being challenged.

Specifically, as is shown above, the coincidence of the 61.8% Fibonacci level and the 100 day moving average should provide a medium-term cap on gains for the Swissy. As a result, while we may see some modest upsides over the coming sessions, a reversal is likely to occur at least once before the constraints of the wedge are tested again. However, any potential reversals are likely to be short lived as there is a decent degree of underlying bullish sentiment in place for the pair. 

In particular, the impending inversion of the Parabolic SAR to bullish and the imminent MACD signal line crossover are indicative of some sizable support. As these readings run contrary to the EMA bias, the current expectation is that the USDCHF enters a medium-term ranging phase and that it will bounce between the 61.8% and 38.2% Fibonacci levels. Such a trend would largely be in line with the fundamental bias which is also relatively neutral, this being a result of buoyancy stemming from expectations of a US rate hike and simultaneous negative sentiment from the CHF’s safe haven status.

Eventually, the ranging phase will come to an end which will likely necessitate a rather solid slip to the downside. Primarily, this will be due to the influence of the upside of the wedge coming into conflict with the USDCHF but the 100 day EMA could also play a role in sending it lower. Regardless, we should expect to see the pair tumble back to support around the 0.9824 mark as it seeks to complete its consolidation phase in earnest.

Ultimately, keep an eye on the Swissy moving ahead as it could have a somewhat interesting few weeks in store for us. As discussed, the near to medium-term ranging phase coupled with a subsequent plunge back to the downside of the structure presents a number of opportunities that may be worth seizing on. However, don’t neglect the fundamental side of things as a shift in the perceived probability of a US rate hike could see negative sentiment win out sooner than currently expected.