Where is the Swissy Heading Next?

Key Points:

• After a major stumble, fears of another pronounced decline are on the rise.

• Some mixed technicals offer an interesting forecast for the days ahead.

• The long-term bias is now bearish overall.

The USDCHF was absolutely slammed by the broader swing away from the Greenback yesterday and this has revived the bear’s hopes that they can once again be in the driving seat for the pair. Indeed, given a handful of technical readings, it may notactually be an unlikely outcome. However, a few dissenting indicators also suggest that the bears may not have ultimate authority in the coming weeks – even if they should command the Swissy’s direction in the long-term. 

As shown below, the USDCHF bears had a rather resounding victory yesterday, managing to sink the pair by around 140 pips in a single session. Understandably, this has raised the spectre of the 500 pip decline seen mid-way through last month – sparking concerns that a similar slide could now be on the way. This view is only reinforced by certain technical indicators such as the newly bearish Parabolic SAR and the overwhelmingly bearish EMA bias. Nevertheless, there could be an alternate forecast at hand that may disappoint those looking to capitalise on another rapid plunge for the Swissy.

Specifically, price action actually seems to be forming a rather convincing falling wedge structure, the downside constraint of which appears to be holding firm. Indeed, it looks unlikely that this constraint is going to yield anytime soon which is due, in part, to the stochastics that are now trending into oversold territory. Importantly,if such a pattern is forming, the implication is that – far from another surge lower – we could see a near-term uptrend that may extend all the way back to the 0.9713 handle.

Interestingly, the presence of the wedge neither violates the near-term technical readings signalling that the pair needs to rebound nor the long-term readings suggesting that the USDCHF must remain under pressure. As a result, whilst we may expect to see the pair gradually make its way down to the 0.9531 mark, the bulls may put up a bit more of a fight than they have previously. However, we are also discounting the likelihood of the fledgling double bottom pattern emboldening the bulls too much as the combination of the 100 day EMA’s placement and the 38.2% Fibonacci level should prevent a breakout above the potential neckline.

Overall, expect to see the pair to stage a modest recovery over the proceeding weeks and pay particular attention around the 0.97 handle as this could prove to be a near-term cap on upsides. Subsequently, we should see the bears go back on the offensive and begin to send the USDCHF all the way back to around the 0.9531 handle, as per the above-described chart pattern.