USD/CHF – Is This a Double Top or Expanded Consolidation?

USD/CHF - Is This a Double Top or Expanded Consolidation?

The USD/CHF rallied from July’s low of 0.8898 to a high of about 0.9115 in August.
This rally is coincident with the decline in EUR/USD as the EUR and CHF are positively correlated – a product of the Swiss National Bank’s intervention policy to keep CHF from skyrocketing, and to peg it to the EUR if the CHF does rally too sharply.

The 4H chart shows a double top forming last week, albeit the second top being slightly higher. The week ended with the pair falling below 0.9040 briefly, which essentially completed the double top. The moving averages in the 4H chart are still in bullish alignment, and price is now testing the 100-period SMA in this time-frame. The RSI has dipped below 40 which shows loss of bullish momentum. It has not tagged 30, so we don’t see any bearish momentum enter the picture yet.

USD/CHF 4H Chart 8/11
usdchf 4h chart 8/10

(click to enlarge)

Assessing the Double Top:

The 4H chart above shows the double top completion. Now if price pulls back we will have a chance to test the double top.

Bearish Correction: If a price top has indeed been established, price should hold below 0.9080, which seems like a central and support/resistance pivot within the double top pattern. In that scenario, we might anticipate a bearish correction toward the 0.90 pivot, the 200-period SMA, or a rising trendline seen in the daily chart. All these factors are between 0.8950 and 0.90. Since there is a prevailing uptrend since May, in the medium-term, we should limit our bearish outlook to the short-term and within the context of this bullish trend.

Bullish Continuation: If price pushes above 0.9080, it is likely to have completed an expanded consolidation instead of a double top. Note that this would bring price above the 50-period SMA as well, and provide a bullish technical picture in the 4H chart, especially if the RSI also climbs back above 60 to tag 70. In this scenario, the next resistance will be the 2014-highs in the 0.9130-0.9155 area. Above that the Nov. 2013 high has resistance at 0.9250.

USD/CHF Daily Chart 8/11
usdchf daily chart

(click to enlarge)

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