The rejection of the Swiss gold initiative led to a bounce off the bottom of the ascending triangle on USD/CHF’s 4-hour forex chart and possibly an upside forex breakout. Price is now on its way to test the resistance of the chart pattern around the .9700 major psychological mark.
An upside forex breakout could lead to a rally of as much as 300 pips, which is the same height as the chart pattern. However, if the top of the triangle still holds as resistance, price could make another test of the bottom. A downside break might similarly lead to a selloff of roughly 300 pips.
Forex Breakout Setup
The path of least resistance is to the upside though, as the “No” vote on the gold initiative means that the SNB can still afford to ease monetary policy or intervene in the currency market if necessary. Remember that the central bank is inclined to keep the franc weak in order to retain competitiveness in international trade and to ward off deflationary pressures in Switzerland.
Meanwhile, the US dollar is still strongly supported by good fundamentals, especially if this week’s set of reports come in strong. Traders might price in expectations ahead of the NFP release as soon as the leading indicators, such as the ISM PMIs and ADP employment figures are released.
A long order above .9700 could be enough to catch a forex breakout move, with a stop at the .9600 handle and a target of 300 pips. This could yield a 3:1 return on risk for a swing trade, especially if the US reports this week show strong results. The event risks for this forex breakout trade today include the SVME PMI, which is expected to show a slower industry expansion, and the US ISM manufacturing PMI.
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