GBPCHF has established downtrend after breaking below a key support zone, yet it seems that a forex retracement signal is playing out for now. Price has broken below the 1.5250 minor psychological level and has dipped close to 1.5050 before pulling back up.
The broken support zone, which might now act as resistance in this forex retracement signal setup, lines up with the 50% Fibonacci retracement level. The next Fib level is in line with the 1.5300 major psychological resistance, which might also act as a ceiling for any potential rallies.
Forex Retracement Signal Outlook
Stochastic has already reached the overbought zone, indicating that the forex retracement signal might play out and lead to a selloff. In that case, GBPCHF could make its way back down to the recent lows near the 1.5050 or perhaps create new ones. The next major support zone is at the 1.5000 psychological handle.
A higher forex signal retracement could last until the 1.5300 resistance so stops must be set above that level for those looking to short GBPCHF. Scaling in and adding a short order at that resistance zone could also work.
Aiming for new lows in price could improve the return on risk but it would be prudent to move the stop to entry once the pair tests the previous lows around the 1.5060 zone in order to minimize exposure. Trailing the stop could be a good way to lock in profits prior to the top-tier economic events this week.
In particular, the BOE is set to make its interest rate decision towards the end of the week, with no actual changes in asset purchases or interest rates expected. Downbeat remarks could lead to a forex retracement signal validation for this setup, as it could push the pound lower against its counterparts once more. On the other hand, hawkish comments could lead to an upside break past 1.5300 and invalidate the downtrend.
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