EUR/CHF: is this the long overdue bounce?
Fawad Razaqzada November 15, 2016 1:25 PM
Volatility in the EUR/CHF may not be as excessive as it once was, which may be a good thing for a certain central bank (hint: SNB), but the forgotten currency pair could actually bounce back this week as it has responded to a key Fibonacci support area around 1.0700/15.
As can be seen from the chart, the 1.0700/15 area is where the 78.6% Fibonacci retracement level of the last major upswing meets the 161.8% extension of the last corrective swing. In addition, 1.0715 was a prior support which momentarily broke down on June 24 after a big drop. It is often after big moves like the one on the 24th that the markets bottom out as the weaker longs are pushed aside and institutional buying takes place near the lows. These guys will clearly want to defend their long positions, meaning it is in their interest if the prior low at 1.0620/5 is now not retested. If that was indeed the low, then a deep retracement like the one we have seen could be where more buying takes place – by those who missed the initial rally and existing sellers who fear a low may be in place.
If the above thesis is correct, the bulls would now want to see the breakdown of some resistance levels, starting with the one being tested today: 1.0745/55 area. Although we have moved above here, we need to see price take this area out decisively, ideally on a daily closing basis or at worst hold there for some time on the lower time frames. I know there are lots of ifs, but IF that were to happen then we could see the start of a more pronounced recovery going forward. On the upside, the initial level of resistance above the 1.0745/55 area is at 1.0810, the prior low, followed by 1.0830: these would be the immediate bullish objectives.
Meanwhile if support at 1.0700 gives way on a closing basis, then this short-term bullish outlook would become invalid. In this potential scenario, the next logical level that the market could drop to would be the 1.0620/5 area.
Source: eSignal and FOREX.com.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.