USD/CHF Has a Bearish Structure; Outlook Should be Limited

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USD/CHF Has a Bearish Structure; Outlook Should be Limited

The USD/CHF looks like it is trading sideways for the most part in the 4H chart, but a deeper examination shows a bearish bias.

USD/CHF 4H Chart 4/27
usdchf 4h 4/27/2015
(click to enlarge)

In April, USD/CHF rallied from a low of 0.9475 to a high of 0.9862. After that there the market remained in this range, coming all the way down but failing to break the support around 0.9475,. The RSI has oscillated between 30 and while the 200-, 100-, and 50-period simple moving averages (SMAs) are moving sideways for the most part.

Howver, as we wind down the month, we are seeing some development of a bearish structure. In the 4H chart above I labeled a possible head and shoulders with capital “S” for the shoulders and capital “H” for the head. The inability to push above 0.9756 last week was what started this bearish structure.

Now, notice that I also labeled a small “s” and a then a small “h” where the the capital “S” is. Indeed, there is a possible fractal head and shoulders here. Essentially, the entire right shoulder of the large H&S pattern might be a smaller h&s pattern. Fractals essentially give more weight to the bearish structure. We still have to make sure price does not push above 0.9625, or else this fractal structure assessment would be invalid.

If it is valid, it means we should expect the market to test the 0.9475 support this week, with risk of breaking lower.

USD/CHF Daily Chart 4/27
usdchf daily chart 4/27
(click to enlarge)

When we look at the daily chart, we can see that the USD/CHF has recovered since the spike in January when the SNB abandoned defending the EUR/CHF 1.20 floor. Remember, when it did that it also reduced its libor rate into the negative territory, which should pressure the CHF especially against the USD, because the FOMC is actually looking to raise rates by year’s end.

So, even though there is a bearish structure that might open up a bearish outlook, we should limit it to the short-term, to the 0.9168 support/resistance pivot. Perhaps, we should look for support as price approaches the 0.9250 area, which was a common, sticky price level during a consoldiation in early February.

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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.