A countertrend setup or a potential forex breakout appears to be forming on USD/CHF, as the pair is testing the top of the ascending channel on its 4-hour chart. Resistance around the .9850 minor psychological level appears to have held, with price gearing up for a move back to the bottom of the range.
If so, USDCHF could drop until support at the .9600 major psychological mark or at least until the middle of the range at .9700-.9750. Stochastic is already in the overbought zone and is starting to head down, indicating a possible pickup in selling pressure.
Forex Breakout Possible?
If buying momentum stays in place though, USDCHF could break past the top of the range and go for more gains. Recall that the Swiss National Bank recently announced negative deposit rates, which might keep the franc weak in the longer run. According to SNB head Thomas Jordan, they are keen on warding off deflationary threats and keeping their currency weak.
Meanwhile, the US dollar is enjoying strong demand, thanks to the FOMC’s hints that they are starting to consider monetary policy tightening for next year. This could lead to a forex breakout past the .9800 levels, indicating a potentially sharper uptrend for USDCHF until the end of the year.
There are no event risks for this forex breakout setup today though, suggesting that there might not be a strong enough catalyst for an upside break. Profit-taking at the end of the week might also take place, which might lead to some weakness for USDCHF and a small correction.
Traders could jump in any short-term pullbacks, as these would offer an opportunity to catch the rally at better prices. In terms of fundamentals, the path of least resistance is to the upside, thanks to the difference in economic performance and central bank biases of the US and Switzerland.
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