EUR/CHF Traders Trying to Defend the 1.20 SNB Floor

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EUR/CHF Traders Trying to Defend the 1.20 SNB Floor

When we look at the EUR/CHF 4H chart, we see some peculiar price action. First of all, price action is bearish. The 200-, 100-, and 50-period simple moving averages (SMAs) are sloping down and are in bearish alignment, while price has been holding under them. The 4H RSI has held below 60, mostly below 50, and was able to tag 30, showing development of bearish momentum.

EUR/CHF 4H Chart 11/11
eurcfh 4h chart 11/11

(click to enlarge)

Defending 1.20: Note the many long tails that have been forming in the past week. These tails reflect the market’s respect for the Swiss National Bank’s (SNB) floor at 1.20. (The SNB has vowed to maintain the EUR/CHF above 1.20 in order to keep the CHF  exchange rate from ballooning and hurting Swiss exports.)

1.2060: It looks like we are getting many buyers as price approaches 1.20, but price remains bearish. At this point a break above 1.2060 will be needed to show that the 1.20 floor is defended.

Bearish Trend: When, we take a step back and look at the daily chart. We can see that it has also been bearish. Price action, moving averages, and the RSI all show bearish bias and momentum. The 1.2045-1.2050 area was a previous support and might provide resistance. Thus, a break above 1.2060 can be an initial bullish signal.

EUR/CHF Daily Chart 11/11
eurchf daily chart 11/11

(click to enlarge)

Limited bullish outlook: Now, even if the 1.20 level is defended, we should not expect much of a rally in the EUR/CHF. The bullish outlook should first be limited to the 1.2118-1.2140 area, which involves previous support/resistance pivots and 1.2140 was the October high.

EUR/CHF Weekly Chart
eurchf weekly chart

(click to enlarge)

Because the 1.20 level is key, we can expect many traders buying here. This is what the SNB wants, some help in defending this area. However, if the SNB does not step in, and the 1.20 level breaks, we can expect the flood gates to open.

Breakout projection: In the weekly chart, we can see that EUR/CHF has been holding roughly between 1.20 and 1.25 in the past 3 years (1.25 is a conservative common high, while the actual high in the recent years is 1.2648). A break below this 500+ pip range could open up 500-pips to the downside, with a medium-term target therefore towards 1.15. The multi-year low is actually at 1.1984. So maybe the floodgates would open only if price can clear below 1.1980, not just 1.20.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.