USDCHF ABC Wave Ready to get Back on Track

Key Points:

• ABC wave still intact and could come into play this week.

• Recent bullishness shouldn’t impact the medium-term forecast.

• Long-term trend line should hold firm.

The Swissy seems to have found the turning point in its potential ABC wave slightly earlier than anticipated which could mean further downsides are on the way. At first, this might appear to be at odds with the pair’s behaviour over the past few sessions which could lead one to question whether or not the ABC wave is valid. Fortunately, there are a number of technical factors suggesting that the forecasted decline should take place.

Firstly, let’s address the strong surges in buying pressure in the immediate wake of Thursday’s plunge. Typically, one could argue that this shows that the USDCHF still has some serious underlying bullish sentiment at work. However, what seems more likely in this context is that the pair simply took a slide too early in a knee jerk response to the ongoing political turmoil in the US. These subsequent rallies are then an attempt to correct what, in hind sight, looks to have been a bit of an overreaction.

Whilst the distinction is slight, it is important as this bullish price action probably has the momentum to bring the pair back to the 38.2% Fibonacci level but it is unlikely that we see gains extend further. Instead, a reversal should be seen as the USDCHF attempts to get back on track and complete that forecasted “C” leg.

There are a number of technical signals that would support this outcome for the Swissy. Firstly, the Parabolic SAR is firmly bearish now and, therefore, we can expect losses to resume within a handful of sessions. Secondly, even if we do have further upside movement, stochastics will be pushed into overbought territory which could help the bears to wrest control of the pair back from the bulls once again. When this decline does finally resume, it is worth noting that it won’t take much to see the 12, 20, and 100 day moving averages move into a bearish configuration which could help to keep selling pressure high moving forward. 

Ultimately, as has been discussed before, this downtrend should end around the 0.9784 mark as the final leg of the wave intersects the long-term ascending trend line. Whilst we will have to take a look closer to the time, given the relative robustness of the trend line it will be unlikely that we see losses go much beyond this point. Of course, there always remains the threat of a major fundamental upset which could exacerbate the pair’s tumble, especially as a result of the Franc’s safe haven status in the era of Trump. Therefore, keep an eye on the news and on your twitter feed.