Tuesday May 13, 2008 - 12:28:22 GMT
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Weekly view of the USDCHF (13-05-2008)
If you believe that the USD complex is on the verge of a multi-month reversal for fundamental reasons, like we do, then one of the most interesting tasks is to choose where to trade this reversal in an optimum way.
The most common pair for traders would be the EURUSD for its direct anti-USD correlation (USD index‚Ä¶) and its liquidity, but we think that the USDCHF is one of the most interesting potentials in this context.
It is enough to see how far down the pair has gone since the great decline has begun in early 2006 (More than 30% was given to the CHF from the highs of 1.32 to the lows of 0.97).
Let's look at the weekly technical picture to see what can be achieved on the up side this time:
In the price window:
1. The first striking feature is the 1-2-3 down trend lines (blue and numbers in brown). This combination is the sign of an exhaustion move (either up or down) and rarely fails. Actually, we can see that 1.9000 was a pivotal level where many investors thought the pair worthwhile for a very long time. When it broke down, and nearly tested, panic took hold and we got the waterfall effect to the low point in March 2008.
2. From the needle style reaction at the bottom, it had to stabilize a bit before it could start the rebound because it is quite difficult for traders and investors to make the psychological switch. Only the crossing up of the same trend lines (that are now channel boundaries) is proving to the FOREX community, the validity of the move. Look how every such crossing is tested and faked out.
3. When do you get a good feeling about the TA that you perform? When the pieces of the puzzle from different parts of the jungle come together. In this case, look how the Fibonacci retracement levels fit nicely with active and important support and resistance levels (violet rectangles and green FIBOS). We have rounded the level values (in violet boxes) for ease of use.
4. Remember that a normal correction is defined as a retracement of the previous trend move by 1/3 to 2/3. Or in FIBO language: 38.2% to 61.8%. So, in case we face only a correction and not a change in trend, we could easily get to 1.1420.
5. Finally, on a very short perspective, look how the 1.0370 was tested successfully and the price is now rebounding towards the next potential level: 1.0780.
In the RSI and MACD Histogram windows:
1. After the double bottom, the RSI succeeded to move quite nicely up and is now at the really important 50 level. A decisive crossing of this level will tell to a lot of long-term players to enter the pair on the long side (and many Stop-losses could be activated in the process).
2. At the same time that the price was crossing the first important channel boundary, and that the RSI moved up from it oversold values, the MACD Histogram (showing the difference between the MACD line and its Moving average) became positive. This fact and its nice follow up is telling a lot about the conviction of the traders in the move.
Besides the EURUSD, it is nice to look around for opportunities for cashing in on the long-awaited USD reversal. One of these pairs seems to be the USDCHF.
On the basis of our latest TA, we see a new and good potential for the upside in the pair because the Fibonacci retracement levels and the very fact that most of extremes return normally to the mean.
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