Throughout this month, we've closely monitored a developing double bottom pattern on USD/CHF. As my colleague Chris Tevere noted two weeks ago, 'should the double bottom's point of reference around 0.8950 give way, then USDCHF could see a rather significant continuation higher over the ensuing weeks/months.' As anticipated, the pair closed last week marginally above that level at .8957, and
the pair has tacked on further gains today.
Technically, the breakout appears to be on solid footing. Beyond the weekly close, the pair is also carving out a large Bullish Engulfing Candle* today; this pattern shows a shift from selling to buying pressure and foreshadows more strength in the days to come. Meanwhile, the MACD is also trending higher above its signal line and the '0' level, showing strongly bullish momentum.
One near-term concern for the bulls is the overbought RSI indicator (>70). This reading suggests that the market may be due for a brief consolidation or pullback. With converging resistance from the 200-day MA and 61.8% Fibonacci retracement of the Jan-Mar drop looming around .8980/90, that pause may come sooner rather than later. At the end of the day though, an 'overbought' indicator simply shows an overwhelming amount of buying pressure, which is a bullish sign in the longer run, so bearish traders are encouraged to tread with caution.
Moving forward, a sustained break above .9000 could expose .9060 (the 78.6% Fibonacci retracement), .9156 (the 6-month high) and .9200 (the double bottom measured move target) next. Meanwhile, only a break below .8900 (the 100-day MA) would call the medium-term bullish bias into question.
*A Bullish Engulfing candle is formed when the candle breaks below the low of the previous period before buyers step in and push rates up to close above the high of the previous candle. It indicates that the buyers have wrested control of the market from the sellers.
No comments:
Post a Comment