EUR/CHF Moves To Complete Its Pennant
Blackwell Global | Aug 25, 2016 02:59AM ET
Key Points:
- Bearish Pennant in place.
- Dynamic resistance from 100 day EMA capping upside.
- Could see a downside breakout within the next fortnight.
The EUR/CHF’s long-term consolidation pattern could be fast approaching its completion which means a breakout is likely on the horizon. As a result, eyes will be on the pair as it nears the upside of the bearish pennant as a reversal here will confirm the pattern. However, the bullish bias of the Parabolic SAR could see the EUR/CHF push through resistance and move to the upper constraint of the sideways channel instead.
First and foremost, as is evident on the below chart, the pair has been range bound for some time but the recent price movements are beginning to hint that a bearish pennant could be forming. As a result, the EUR/CHF could see a breakout within the next number of days and this could end the ranging phase. However, this will largely be predicated on a reversal around the 1.0910 level as if the pair instead moves to the 1.0942 level, it will be less clear when the sideways channel will end.
Whilst the bias of the SAR indicator and the neutral stochastics might be suggestive of continued bullishness, a number of other technicals are indicative of the contrary. Specifically, the 100 day EMA is currently proving to be source of dynamic resistance and the 38.2% Fibonacci level is making itself felt. When combined with the resistance being generated by the upside constraint of the potential pennant, these technicals should ensure a reversal.
After reversing, it is expected that the pair moves to test the lower boundary of the pennant at least once more prior to breaking out. However, keep watch on the EUR/CHF’s Bollinger bands® as it moves forward as they will likely provide a decent gauge of when the consolidation phase is about to collapse. Additionally, when the downside breakout does occur, pay close attention to the 23.6% Fibonacci retracement as it could provide some support as the pair declines. This being said, the EUR/CHF should descend to around the 1.0719 mark by the end of the tumble.
Ultimately, this pair still has a while to go before any major price movements but, in the interim, there could be some range trading opportunities. Monitor the EUR/CHF’s movements however, as they could be upset by fundamentals in the coming days. Specifically, watch the German IFO Business Climate data as this is likely to cause some volatility ahead of Jackson Hole as the week closes.
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