After plumbing its one-year lows earlier this month, the EUR/CHF has broken out to a new 5-week high this morning. The move does not appear to be driven by any particular economic reports, rather general “risk-on” sentiment as geopolitical tensions in the region continue to abate. News that Russia has bloodlessly captured the last Ukrainian military ship in Crimea has forward-looking traders anticipating a potential resolution in the region, leading to selling the safe haven Swiss franc. While this storyline may or may not be a catalyst for the pair, the technicals are clearly starting to paint a more constructive picture.
After gapping down below 1.2130 support on the first trading day of the month, the EUR/CHF put in a higher low midway through the month. The price action was particularly bullish around this bottom, with rates putting in a Morning Star* formation on the daily chart. This relatively rare 3-candle reversal pattern shows a clear shift from selling to buying pressure and is often seen at near-term lows in the market. As of today’s US session open, the pair has broken above converging resistance from the previous highs and the 38.2% Fib retracement at 1.2215, confirming the bullish shift.
The secondary indicators also suggest potential gains to come. For one, the RSI has broken back above its resistance level at 50 for the first time since late January. From here, a move up to “overbought” territory around 70 may be seen next. Meanwhile, the MACD is trending higher above its signal line; a cross of the “0” level later this week could add more fuel to the buyers’ fire.
As long as the bulls maintain the upper hand, continued gains toward the next Fibonacci retracement levels are likely, with resistance possible at 1.2248 (50%), 1.2285 (61.8%), and 1.2331 (78.6%). Conversely, a drop back below the 1.2200 round handle could shift the bias in the pair back to neutral for now.
* A Morning Star candle formation is relatively rare candlestick formation created by a long red candle, followed a small-bodied candle near the low of the first candle, and completed by a long-bodied green candle. It represents a transition from bearish to bullish momentum and foreshadows more strength to come.