Is USD/CHF Heading For A Nosedive?

December 16, 2013 in Chart Alert

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The strong downtrend which had started from the week of May 31, 2010 had taken USD/CHF from 1.1731 to 0.7069 during the week of August 8, 2011. The recovery to 0.9315 from the low of 0.7069 had a very strong momentum and had come as quite promising but then the momentum slowed down even though the pair managed to touch 0.9972. The resistance came just shy of the psychological level of parity i.e. 1.0000 but also just 22 pips above of the 61.8% retracement of the great fall from 1.1731. Since then the pair has been in a very volatile sideways range between the 38.2% retracement support and 61.8% retracement resistance level. In fact we can say that this sideways price action has been in place for over 2 years.

USD/CHF’s journey during the past three and a half years

USD/CHF weekly chart - the price action during past three and a half years.

USD/CHF weekly chart – the price action during past three and a half years.

And then the story reverses – Highs going lower and so the bottoms

Let’s have another look on the same chart

USD/CHF chart for past 3 and half years with change in the direction

USD/CHF chart for past 3 and half years with change in the direction

This is evident that The first resistance during the recovery was a minor one at 38.2% retracement level. The break came soon and the pair, then found resistance below the 50% retracement level. Till USD/CHF finished the 61.8% retracement, the peaks were going higher and the lows were too. The story seems to have reversed from there. The peaks started going lower and so the bottoms too. However, the one thing which was keeping the pair in check was the support at 38.2% Fibonacci retracement level. The price action was contained above that support.

What’s new

The 38.2% retracement is at 0.8849. The pair just touched 0.8840. It was just a touch and go situation as the support was felt immediately, nevertheless it was a break. And then sometimes initial small indication end up in big moves.

The larger picture and what is expected

Let’s have the larger view of the historical price action of USD/CHF during past 10 years

USD/CHF historical chart for past 10 years indicating an overall downtrend.

USD/CHF historical chart for past 10 years indicating an overall downtrend.

It is clear that the pair has been is a strong downtrend for over 7 years now. The failure at the 61.8% retracement and then the recent slight break below the above mentioned support may have very strong implications for a continued downtrend. It is not just that USD/CHF might have just finished the consolidation by retracing to 61.8% level and finding the resistance below the parity level but another look tells us that the previous support trend-line seems to have turned into a resistance trend line.

The bearish sentiments have been there in the larger picture but have started coming back into the near-term picture as well. If the price action sustains below 0.8849 for sometime then a drop towards 0.8568 to 0.8630 support and then lower can be expected. Considering the overall price -action we do not rule out the possibilities of a fall even towards 0.8240 or more in the days to come.

Safe Haven and “The Safe Haven”

The U.S. dollar and the Swiss franc both have been in the safe haven currency  category for long. It is clearly evident that the dollar is losing the grounds the franc  in this battle for the status of “The safe haven currency”.

Do share your opinions in the comment box below to take this discussion forwards.

You may also like to check the weekly USD/CHF outlook and the daily USD/CHF analysis.

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