After weeks of rallying, USDCHF is forming a head and shoulders forex reversal pattern on its 1-hour time frame. This could be a sign that the uptrend is over and might turn soon, leading to losses for the pair.
Stochastic is almost in the overbought area, indicating that buyers are getting exhausted. This could lead to a drop below the forex reversal pattern’s neckline around the .9600 major psychological mark and a decline of as much as 150 pips, which is the same height as the chart pattern.
Forex Reversal Possibility
For now, the 10 SMA is still moving above the 200 SMA, which suggests that the uptrend still has a chance of continuing. A break below the dynamic support area could be an early forex reversal signal though, with a strong red candle below .9600 confirming further losses.
On the other hand, a bounce from the current area could mean another test of the .9750 minor psychological level or perhaps further gains for USDCHF. Event risks for this forex reversal setup include the release of the US initial jobless claims today and any updates regarding the Swiss gold initiative. Recall that this proposal would require the SNB to keep 20% of its reserves in gold, which would restrain its ability to intervene in the forex market and keep the franc weak.
Indications that the gold initiative might push through could lead to a strong franc rally as it would reduce odds of an intervention. This could spark the forex reversal and a move until the .9500 levels or lower. On the other hand, updates suggesting that the initiative isn’t likely to push through would mean losses for the franc since intervention would still be a possibility. Bear in mind that the Fed appears to be the only major central bank likely to start tightening next year.
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