The US dollar staged a huge upside breakout against the Swiss franc currency last week as traders sold safe-haven assets broadly and moved backed into the greenback as US Treasury yields hit new multi-year highs.
In terms of gains, the USDCHF pair has rallied by around 500 points since mid-February, and around 350 points since the start of this month. Technical analysis currently shows that the USDCHF pair is trading at a critical juncture.
If bulls can anchor the USDCHF pair above the 0.9290 level the ongoing breakout could be just getting warmed-up as a number of bullish price patterns are alluding to further upside towards the 0.9800 level at some point over the medium-term.
Looking at the fundamentals, yesterday’s fairly muted CPI inflation report from the US economy provides a solid example that CPI excluding energy and food price is not rising as fast as markets may have been expecting.
The 0.4 percent increase in the US Consumer Price Index last month, which does include energy and food, was largely expected. As inflation fails to live up to the markets expectation it does provide some reasoning why a correction may take place.
We should also consider that the USDCHF pair has had a strong run higher since the start of the month, so a correction is probably healthy. The next big test for the USDCHF pair could be the US stimulus bill being distributed to US citizens.
It is unclear whether the stimulus bill is fully priced into the market. I suspect it probably is priced into asset classes at the moment, which means that some additional US dollar bullish catalyst may be required to nudge the US dollar index into the next stage of the ongoing bull run.
The Activtrades Market Sentiment tool shows that some 56 percent of traders are bearish towards the USDCHF pair. Bearish sentiment is not at high levels, so bears could be right about the ongoing correction from the 0.9350 area.
Typically, neutral sentiment marks range bound trading conditions, so we could see the USDCHF pair consolidating until the next major break up or down takes place.
USDCHF Short-Term Technical Analysis
The four-hour time frame shows that the pair has reached the target of a large bullish inverted head and shoulders pattern. This could be time for the USDCHF pair to correct.
Bearish MACD price divergence has also formed during the latest run high. According to the overall size of the bearish price divergence, the USDCHF pair could correct back towards the 50 percent Fibonacci retracement of the recent move high, close to the 0.9110 support area.
The 0.9250 and 0.9180 are other big Fibonacci levels to watch if a meaningful correction takes hold in the USDCHF pair.
Source By ActivTrader.
USDCHF Medium-Term Technical Analysis
Looking at the daily time, a large bullish reversal pattern has taken shape with significant upside potential, following the latest run towards the 0.9350 resistance zone.
Bulls need to hold the USDCHF pair above the 0.9290 level to keep the breakout above the neckline of the pattern in place. The overall size of the pattern is suggesting an eventual run towards the 0.9800 area.
Do not be surprised to see a sharp dip lower if the 0.9290 level breaks, which would place the 0.9240 and 0.9180 levels as possible targets before the next big up move commences.
Source By ActivTrader.
